Wednesday, July 17, 2019

NCAA Revokes Student Athletes' Scholarship After He Becomes YouTube Sensation

I saw a story on our local news last night that made my blood boil about the faux charity known as the NCAA.  Recall that the NCAA collects and pays millions to everyone except the players.  To do so, according to the argument laughingly rejected in the latest lawsuit challenging the rule against players sharing in the bounty, would destroy the alleged amateurism the NCAA is so bent on protecting.  Now, I am not an enemy of the NCAA.  One of my daughters is attending school on a golf scholarship, though the fact that she can play golf makes me wonder if she is really my kid because she definitely didn't inherit them skills from me.  Anyway, a kid named Donald De La Haye play[ed] kicker for the University Central Florida, a school one of my other daughters attends right down the street from my home.  The first remarkable thing about this story is . . . well, he is a kicker.  And while kickers are important and indispensable to a winning season, they come a dime a dozen.  They suit up just like everybody else but they are practically immune from getting hit by the rules of the game.  That they come a dime a dozen -- most recently from the ranks of those who play football as that term is used throughout the rest of the world -- is a point of relevance discussed below.  

Anyway, De La Haye has a YouTube channel that has become quite popular, with over 1.5 million subscribers.  His YouTube name is "Deestroying" and his videos seem pretty routine frat boy or jock cheesy humor.  Still, he has 1.5 million subscribers and counting.  I haven't watched any except the one in which he announces what the NCAA is doing to him (see below). Here is an excerpt from one of our local newspapers

Here’s a kid the NCAA ought to celebrate, living proof that college football programs don’t necessarily crank out dolts unprepared for the new economy. By his sophomore year, University of Central Florida kicker Donald De La Haye’s zany football-based performance art had attracted close to 1 million YouTube subscribers. Which provided Donald with “a modest amount of income from the ad revenue.”  Barely 20 years old, De La Haye, known as “Deestroying" to his followers, was an entrepreneur for the digital age. And a pretty damn good kick-off specialist to boot. Except the $14 billion-a-year cartel that controls college athletics won’t abide students cutting into the NCAA’s revenue stream. Once a kid agrees to an athletic scholarship, he must surrender economic rights to his name, to his very image.  Yet there was Deestroying, pretending his face belonged to him, not the university. Rather than risk NCAA sanctions, UCF revoked his scholarship.  Young De La Haye, whose family moved from Costa Rica to Port St. Lucie when he was seven, told the university that he’d stop accepting advertising revenue from his videos. Not good enough. The rules prohibit any videos “based on his athletics, reputation, prestige or ability.” All that belonged to the UCF and the NCAA.

"Every time I step into that [NCAA] compliance building, I hear nothing but bad news."  That's how the kid starts explaining the unexplainable on his YouTube Channel:  

The kid was actually given a choice.  Take down your Youtube channel, stop earning money from your own name and face -- "that's for us to do exclusively, you know the rules!" -- or lose the scholarship.  He chose to retain his personal autonomy, gave up his scholarship and left school.  I am not gonna preach about Nick Saban's salary or that of many other coaches, and Athletic Directors,  or the billions reaped by ESPN and the like from the charity known as the NCAA.  But for data-heads who want to know, check out "Madness, Inc. How everyone is getting rich off college sports -- except the players."

To see how entertaining the student's YouTube videos can be -- and how unrelated to the NCAA's business (I used that word intentionally) they are -- check this one out:

Now about his status as a kicker.  Having had my bell rung plenty of times as a kid playing football, I really don't think kickers are American football players.  If anything, they are European football players in pads.  But two things:  first, this kid is good enough that he now plays for the Toronto Argonauts in the Canadian Football League, an outfit that does pretty much the same thing as the NCAA but doesn't pretend to be charitable or amateurish.  Second, if this kid had been a 6'6 wide receiver with 4.3 speed or faster, attracting a whole buncha television viewers, you best believe the College woulda went for it on 4th and long to keep him on the team.  Trust me, they would have hired that Bond Schoeneck & King, a Kansas City firm that specializes in NCAA rules, and litigated this thing til the cows came home.  And that might not have been necessary.  Given his star power, the NCAA would have found a way to inject some sanity into the rule; they would have come up with a waiver.  He'd still be on YouTube and he would still be catching passes for UCF on ESPN TV, from which the NCAA gets paid billions.  He is a good kicker, but he is just a kicker!  Kickers are indispensable but they do not put butts in seats.  And just what does a student-athlete's posting on YouTube have to do with the sanctity of amateur sports, except that it might cut into practice time!

Anyway, its this kind of craziness that has led to calls to yank the NCAA's tax exempt status.  

Darryll K. Jones


July 17, 2019 | Permalink | Comments (3)

Monday, July 15, 2019

Can Charity Completely Replace Taxation?

The Foundation for Economic Education (FEE), in today's online edition makes the case that charity can replace taxation altogether in the provision of charitable goods and services -- in this case, health care and education to the poor.  Here are the salient points of the argument along with my counterpoints:   

However, is publicization (of health care and education) through state activity the only or best way to provide those services to the poor? Do we have alternatives? How about charity? Couldn’t charity replace taxation?   It could—and with solid advantages.  There are four main reasons why this is the case: moral, political, financial, and psychological 

1.  The Moral Case.   Are taxes so different from charity? Well, pulling out our wallet to donate money to a non-government organization (responsible for offering health or education) is different than opening our pockets for the revenue guys who threaten us: “If you don’t pay your taxes, you will end up in prison!” We have here a strong moral difference between a forced act and a voluntary act: taxation is coercion, while charity is benevolence.

In fact, rich countries that adhere to a welfare state model and (of course) high taxation are not the most generous ones. According to rankings from the Organization for Economic Cooperation and Development (OECD), France has the highest tax-to-GDP ratio in the world (46.2 percent), followed by Denmark (46 percent) and Belgium (44.6 percent).  When we check the Charities Aid Foundation (CAF) World Giving Index, France is 72nd on the list of generosity, Denmark is 24th, and Belgium is 39th. On the other hand, Ireland’s tax-to-GDP ratio is 22.8 percent, and the United States is 27.1 percent. Ireland is fifth on the CAF World Giving Index, and the United States is fourth. Interesting, isn’t it?

Editor's response:  Maybe those who live in welfare states confidently expect that the state will take care of all health and education needs and thus feel no compunction to donate.  Ever think of that!?

2.  The Political Case.   There is an enormous risk in allowing the expansion of the state's forces, even when we are talking about areas as important as health care and education. Public education opens a highway to the imposition of cultural hegemony through indoctrination. If education is provided by several independent entities (sponsored by charity), it is harder to control it. The government gains the power to tell us what to eat and drink, how to ride or drive, what we can do or not, and more.  But when education is centralized in the state’s hands (afforded by taxes), it easily becomes an ideological apparatus, making the dreams of Antonio Gramsci and Louis Althusser come true.  Once public forces take the responsibility for providing health care, life is made subject to explicit calculations of state power, featuring what Michel Foucault and Giorgio Agamben called biopower or biopolitics: Life itself becomes an object of concern for power. As a result, individuals see the demise of any boundaries against public intervention in their lives. The government gains the power to tell us what to eat and drink, how to ride or drive, what we can do or not, and more.

Editor's response:  Now this might be a legitimate point but only for a small group.  There are a plenty of schools, a distinct minority to be sure,  that do not accept any federal funding "in order to preserve their liberty and independence . . . Government aid comes with government strings, whether it goes directly to a school or directly to its students. To avoid these strings, a school must decline aid both to itself and to its students. That is, it must decline to participate in government-sponsored student loan and grant programs.  Most of the schools on the list refuse not only federal but also state and local government aid."  But this small minority of schools hardly proves that the majority would forego taxpayer support in exchange for "liberty and independence" made possible by charitable donations.  For their part, hospitals are regulated in all sorts of ways, and not just in exchange for accepting medicare or medicaid payments.  They might eschew government financial support but health and safety concerns will always justify their lack of "liberty and independence."  

3.  The Financial Case. We will set here an audacious premise: Private entities sponsored by charity are normally more effective (they are cheaper or have a better cost-benefit profile) than public entities. They can do the same with fewer resources.  For example, in Brazil, we have public and private universities. Research shows that a student in a Brazilian private university costs 60 percent less than in a public university. Maybe poor countries could do more with less money if they invested in the private sector and thought about how to promote charity instead of relying only on public services and taxation.  Perhaps if the government demanded less (coercively), people would give more voluntarily.  The 2016 IUPUI survey asked wealthy people what they would do if taxes were eliminated. What do you think they said? Seventeen percent indicated they would increase the amount they give to charity, and 6 percent said they would dramatically increase (72 percent would stay the same, and just 5 percent would reduce the contribution). In 2013, the figures were even more in favor of charity: 47 percent would stay the same, 31 percent would increase, and 18 percent would dramatically increase.  Considering this—rich people would give more money and we can do more with less (investing the money donated in the private sector)—why can't we believe charity is a financially feasible alternative? As a famous politician’s slogan goes: Yes, we can!

Editor's response:  I almost stopped at the assertion that private charitable entities are cheaper and have better cost-benefit profiles.  We are talking about education and health care remember.  Private universities, at least in the United States, are pretty much out of reach for even upper middle class students without tax payer funding.  The people who cannot afford private schools can generally afford public schools.  Second, private charitable hospitals are just as expensive, if not more than for-profit hospitals.  And with the meshing of patient payment options, I am not sure there is any real price differentials between charitable and non-charitable hospitals.  See this post and this post from last week.  

4.  [The Psychological Case]  Several social psychologists, among them Elizabeth Dunn, argue that people who give money to charity are happier than those who don’t. And we can see the benefits of giving spike when people feel a real sense of connection to those they are helping and can easily envision the difference they are making in those individuals’ lives.  For example, UNICEF is such a big, broad charity (doesn’t it resemble the state?) that it can be hard to realize how our small donation will make a difference. What’s the matter? The  emotional return on investment is eliminated when people give money to UNICEF (imagine what happens when we “give” the money to the state). This suggests that just giving money to a worthwhile charity (or to the Leviathan) isn’t enough. We need to be able to envision how exactly our money is going to make a difference.  One could say we need to find a way to show the results of tax collection and make the state better at providing public services.  The IUPUI survey confirms this statement. Discussing the motivations for charitable giving, donors provided three main reasons: (1) they believed in the mission of the organization (54 percent); (2) they  believed their gift could make a difference (44 percent); (3) for personal satisfaction, enjoyment, or fulfillment (38 percent).  Furthermore, the study showed that people have the most confidence in individuals (87 percent reported either “some” or “a great deal”) and nonprofit organizations (86 percent reported “some” or “a great deal”) to solve societal or global problems. Sizeable proportions of interviewers held “hardly any” confidence in the legislative branch (58 percent), the executive branch (46 percent), and state or local governments (41 percent).  One could say we need to find a way to show the results of tax collection and make the state better at providing public services (in a cost-benefit analysis). Well, even with these improvements, what about the moral plea? Will we keep acting by force? And if one thinks people pay taxes voluntarily, what about the political plea? Will we keep making room for interventionism? Even though taxes defenders refuse to admit it, these questions remain without satisfactory answers.

Editor's response:  Hmmmmmm.  So people would be happier giving to charities because they could more easily track the use of their charitable dollars than they can with forced extractions through taxation.  Ok, so Hansmann's market failure theory to explain the nonprofit firm works to explain why some nonprofits are patronized even though the resulting public good may be incapable of measurement.  Does this mean we would end up having more willing donors than reluctant taxpayers though.  Free rider much?

This article is probably . . . well, a waste of time on a slow news day.  Or am I being too harsh?


Darryll K. Jones

July 15, 2019 | Permalink | Comments (1)

Thursday, July 11, 2019

Cherry: "Nonprofit Governance: Who Should Be Watching? A Look at State, Federal and Dual Regulation"


Jaclyn Fabean Cherry
recently posted "Nonprofit Governance: Who Should Be Watching? A Look at State, Federal and Dual Regulation." 

Here is the abstract:  

Recent scandals in the nonprofit sector have once again called into question the issue of nonprofit governance. Who is governing these organizations and are they doing so appropriately? Who is regulating and what law applies — federal, state, or both? The one thing that is certain is that clarity is needed. True to form, the egregious behavior of some of those serving on the boards of directors of large organizations has brought these issues back into the spotlight, raising questions for regulators and the general public about the validity of these and other organizations and the truth of their stated missions. While most assume that clear laws dictate the behavior of those entrusted with the care of charitable nonprofit organizations, some scholars question just how clear these laws are and whether overstepping by the Internal Revenue Service in this area may be causing confusion. Some believe that while nonprofit governance was once the purview of the states alone, the federal government has inappropriately preempted oversight in this area. Charitable nonprofit organizations incorporate under state law and receive tax exemption in accordance with federal law, resulting in a system that has sometimes complicated legal matters. Yet, under both state and federal law, nonprofits must function to carry out their organizational missions for the good of the public.

Recently, the Trump Foundation, the Resnick Foundation (Wonderful Company) and Goodwill Omaha, all designated as charitable nonprofit organizations by the Internal Revenue Service, have been the focus of scandal and review. Taken together, they represent many of the challenges that are at the core of the governance issue. A review of the facts in these and other situations will help clarify this issue and focus on potential resolution.

This Article begins by discussing nonprofit governance, board of director fiduciary duty, and federal, state, and common law as they pertain to nonprofit governance. It sets out different theories for whether the IRS has in fact overstepped its authority in this area by regulating nonprofit governance matters and discusses whether there should be more cooperation between the IRS and states attorneys general. It then summarizes three recent situations as examples of this current dilemma.

More specifically, this Article reviews the claim by many scholars that by regulating nonprofit governance through IRS forms 1023 and 990, the IRS has overstepped its authority; it explores the theory that the IRS has gone even farther by regulating through the private benefit doctrine. It asks if the IRS has overstepped and, if it has, whether it has done so out of necessity because state attorneys general are overworked, understaffed, and generally unable to keep up in this area. It will also ask whether, as one scholar advocates, dual oversight is not only legal but actually more effective. Further, this Article compares similarities between nonprofit and for-profit governance regulation to glean any useful lessons, and explores policy considerations surrounding these governance issues. Finally, it suggests that perhaps dual jurisdiction with established roles and mandatory information sharing may work best given the many nuances in the sector and the political nature of the offices tasked with this oversight.

Darryll K. Jones


July 11, 2019 | Permalink | Comments (0)

Wednesday, July 10, 2019

The Other Side of Hospital Financials: Fees, Debt and Charity Care

I just want to piggy-back quickly on the great blogging done by Darryll Jones on the hospital financials and pay issue - clearly, there is a lot of attention currently being paid to hospital expenses.   The hospital income part of the balance sheet has also been getting a great deal media attention as of late, as noted in Darryll's post on the ProPublica article below.  On June 26, the Wall Street Journal piled on with, "When Patients Can't Pay, Many Hospitals Sue," discussing the aggressive collection tactics of  nonprofit hospitals.   The article does mention that the Affordable Care Act included limitations regarding debt collections, but that lawmakers may be currently looking into additional debt collection or charity care limits, noting that

...Congressional and state lawmakers from both political parties say nonprofits hound low-income patients with aggressive collection efforts, even as they enjoy tax-exempt status and their senior executives bring in salaries that rival for-profit organizations....

While I am dubious that nonprofits should pay less in compensation because they are nonprofits (and I am absolutely not biased on this as a employee of a nonprofit LOL), the link between aggressive collection efforts and executive salaries is clear in the minds of the public and lawmakers.    For an interesting follow up on the article, the opinion page as of July 7 has the insights of a number of doctors as well.




July 10, 2019 in Current Affairs, In the News | Permalink | Comments (0)

Forbes: "Top U.S. Non-Profit Hospitals & CEOs Are Racking Up Huge Profits"


This must be the season of scrutiny for nonprofit hospitals.  A few days ago we blogged about one nonprofit hospital's particularly aggressive collection activities, including thousands of lawsuits against indigent patients the hospital agreed to treat in exchange for tax exemption.  Forbes online published an article last week discussing how "the top 82 nonprofit hospitals" are making billions and paying their Tophats millions.  Of course, the law pretty much allows nonprofit hospitals to accumulate mountains of money as they pursue their charitable purpose.  In other words, nonprofits can make money they just can't pay dividends.  The law also allows nonprofit hospitals to pay reasonable compensation determined by reference to similarly situated for- and non-profit hospitals.  That the top nonprofit hospitals have large, and sometimes fee-generated endowments, and pay their Tophats outrageous salaries is not necessarily indicative of a non-charitable purpose.  Academic hospitals, in particular, typically treat the sickest patients and the rarest diseases -- in part because doing so assists in their teaching and research mission -- and they cross-subsidize those activities from fees paid by non-indigent patients among other sources.  The theoretically ideal tax exempt hospital would probably need to accumulate a largess (if not from donations, then from paying patients I suppose) with which to "cross subsidize" (but not sue for payment) indigent care and find new cures and treatments.  I am not so sure I can say the same about outrageous salaries but that is a problem of corporate governance, whether for-profit or nonprofit, that has caused outcries for years.  And, in final defense of the regs (53.4958-4(b)(1)(ii)(A)) allowing nonprofits to pay for-profit market salaries, it should be remembered that nonprofits exist  within an amoral profit seeking market.  They don't normally get discounts on labor, supplies or other inputs just because they are the proverbial "good guys."  Still, the Forbes article is consistent with the trend towards alarm-ism with regard to the wealth of hospitals that pay no taxes and still put plenty of patients in the poorhouse through their fee structures:

Our auditors at looked at America’s healthcare system and found that so-called “non-profit” hospitals and their CEOs are getting richer while the American people are getting healthcare poorer.  Our new oversight report Investigating The Top 82 U.S. Non-Profit Hospitals, Quantifying Government Payments and Financial Assets specifically looked at large nonprofits organized as charities under IRS Section 501(c)3 with the mission of delivering affordable healthcare to their communities.   We found that these hospitals add billions of dollars annually to their bottom line, lavishly compensate their CEOs, and spend millions of dollars, which are generated by patient fees, lobbying government to defend the status quo.  Last year, patients spent 1 out of every 7 U.S. healthcare dollars within these powerful networks. Many are household names like Mayo Clinic* in Rochester, MN; Cleveland Clinic*, in Cleveland, OH; and Partners HealthCare in Massachusetts.  Here’s how executive compensation breaks down at the 82 largest non-profit hospitals using the IRS 990 informational returns and auditing the latest year available:

    • 13 organizations paid their top earner between $5 million and $21.6 million;
    • 61 organizations paid their top executive between $1 million and $5 million;
    • Only 8 organizations paid their top earner less than $1 million (which proves it’s possible).

This chart [see above] shows the income bands of top-paid executives in the 82 large charitable hospitals across America.

The article includes a link to a study -- it seems almost more like an advocacy piece, but that doesn't mean the facts are not real -- presented in a neat sort of YouTube-like format.  Anyway, here is the presser on the study:



June 24, 2019

REPORT: Healthcare Charities Raking in Cash & Stockpiling Money Oversight Report – Top 82 U.S. Non-Profit Hospitals, Quantifying Government Payments & Financial Assets, studied the largest charitable healthcare providers where roughly 1 out of 7 U.S. healthcare dollars was spent last year.   

Senator Tom Coburn, "The problem in health care is not that markets have failed. The problem is they have never been tried. This report shows that hospitals and so-called health care ‘charities’ benefit handsomely from the status quo. The lack of price transparency in our health care system is driving up costs and reducing access and quality. Giving patients an honest look at health care economics is one of the best ways to drive reform."

Why are the salaries so high at these healthcare charities? Furthermore, net assets at these charities increased by 23.6% or $38.9 billion last year.

Salaries ran as high as $21.6 million. In fact, six CEO's made between $10 million and $21.6 million; seven CEO's made between $5 million and $9.99 million; 25 CEO's made between $2.5 million and $4.99 million; another 36 CEO's made over $1 million; and only 8 executives took a paycheck under $1 million.  Adam Andrzejewski, "America’s patients shouldn’t have to go on a scavenger hunt to discover prices for services. The lavish salaries for health care CEOs and rich endowments for charities may be one reason why the numbers are so elusive for patients. In every other area of the economy shoppers can see what things cost. It’s long past time to apply basic standards of transparency and price discovery to health care."  For more than 50 years, American presidents have been sounding the alarm about America’s healthcare system and rising costs. Hard data backs up this concern. In 1970, healthcare amounted to 7% of GDP and today is near 20%. 


    • $203.1 billion – the total of combined net assets of these 82 non-profit providers;
    • 23.6% – the percentage of growth in combine assets from $164.2 billion to $203.1 billion; 
    • $20,000 – the annual healthcare costs for the average American family; 
    • $21.6 million – Banner Health CEO earnings last year;
    • $26.4 million – Combined lobbying costs spent by the 82 hospital organizations spent last year.
For full report, click here.
Darryll K. Jones

July 10, 2019 | Permalink | Comments (0)

Tuesday, July 9, 2019

Reflections on Legal Barriers to Cross-Border Philanthropy in Europe

European Philanthropy ManifestoFollowing up on my earlier post, I was fortunate enough to be able to discuss last week the various legal barriers to cross-border philanthropy in Europe with some of the leading practitioners, academics, and organization leaders from that continent in connection with the European Research Network on Philanthropy (ERNOP) biennial conference. My detailed reflections are available on the Alliance website, so I will just say here that it is a time of both threat and promise for European philanthropy. The threat is that some countries are enacting new laws targeting cross-border philanthropy, which add to existing barriers relating to legal form and taxation. The promise is that supporters of philanthropy have two new initiatives to rally around: the European Philanthropy Manifesto issued by the Donors and Foundations Networks  in Europe (DAFNE) and the European Foundation Centre (EFC) earlier this year; and the European Economic and Social Committee (EESC)'s recent opinion "European Philanthropy: an untapped potential" (the EESC is a consultative body of the European Union). Hopefully these developments, and opportunities such as the event I attended that provide an opportunity to discuss new developments, will help ensure a strong enabling environment for philanthropy in Europe for many years to come.

Lloyd Mayer

July 9, 2019 in Conferences, International | Permalink | Comments (0)

Monday, July 8, 2019

Ways and Means Channels Its Inner Emily Litella on Parking: Never Mind.

Emily LitellaEmily Litella (played by Gilda Ratner) was cranky old woman who always showed up to complain about something on the Weekend Update in the early years of Saturday Night Live. In every case, she was complaining about something she failed to hear correctly – she couldn’t understand, for example, why everyone was so upset about violins on television.  When informed that people were, in fact, upset about violence on television, she would pause and then just say, “Oh, Never Mind.”

Congress clearly didn’t hear all the complaints about the parking tax way back when (or about any other part of the TCJA for that matter: “The Games They Will Play,” anyone?)  Now in the face of complaints from the nonprofit sector, the House Ways and Means Committee had a “Never Mind” moment with the parking tax in the extenders package that passed out of committee at the end of June.  According to The Hill, the bill retroactively repeals the parking tax and extends some other tax provisions, notably the EITC, the child tax credit. and the dependent care credit.

For those of you not following the parking tax in excruciating detail, Section 132(f) excludes qualified transportation fringes (QTFs) from income for an employee BUT new Section 274(a)(4) prohibits a Section 162 deduction for “the expense of providing” a QTF, regardless of the fair market value of the fringe.   Because nonprofits don’t care about deductions, new Section 512(a)(7) imposes the UBIT on non-deductible expenses under Section 274.  (Which totally puts nonprofits and for-profits on the same footing, right?  Right?)

Probably the most common QTF is the qualified parking fringe under Section 132(f)(1)(C). The cost of providing a parking QTF is relatively simple if you are paying a third-party vendor for a parking space for an employee. But for a hospital that runs a parking garage, it isn’t so easy. For a university that has many different parking facilities, some of which are open to the public, it’s even more difficult. A quick perusal of Notice 2018-99 demonstrates just how much of an administrative nightmare it can be; my sister, who is a tax accountant for a state university, backs that up anecdotally. And that’s the tale for large organizations that have the accounting resources to deal with such things – consider the burden for a small organization with a part-time bookkeeper and a pro bono accountant.

Although The Hill reports that Republicans support the parking tax repeal, they opposed the other tax provisions, citing the uncertainty to taxpayers.  In addition, the bill seems to be short on revenue offsets, which may cause political issues with a variety of legislator, so the future of this bill may be uncertain. 



July 8, 2019 in Federal – Legislative, In the News | Permalink | Comments (0)

Yertle the Turtle and the Proposed 4968 Regulations

The Washington Post reported last week that the proposed 4968 regulations run counter to Senator Mitch McConnell's efforts to protect tiny, but well meaning, Berea College from the excise tax on endowments.  The article's headline is more ominous than the facts.  No love lost here for McConnell -- also known as "Yertle the Turtle" -- not since his shameless blocking the of the Merrick Garland nomination -- but he is probably right in this effort.  According to WAPO, proposed 4968 included an expanded "Yertle Exemption" which would have excluded Berea College from 4968's tax.  4968(b)(1) makes the tax applicable only to private institutions that have at least "500 tuition paying students."  McConnell apparently wanted to make absolutely sure Berea would not be taxed; schools like Berea that guarantee a college education to low income students should be exempt.  If the statute were based on reasoned policy, even arguable policy, that would be a a good distinction; tax colleges and universities who hoard mountains of resources while charging high tuition, and exempt those that charge no tuition at all (at least not for the majority of students).  But 4968 is not really based on tax policy, its just a revenue raiser designed to offset the corporate tax breaks  and so McConnell's proposed expansion failed, according to the article.  Anyway, not to be outdone, McConnell,  "slipped it into the 2018 Congressional Budget Deal,"  according to the Post.  The Post interprets the proposed regulations as  including in the definition of a "tuition paying student" those whose tuition is funded in whole or part by third parties, including state and federal grant makers.  Are the regulation drafters rewriting the law to exclude the exemption?  Probably so.  Thus, although Berea guarantees all of its students a tuition-free education, the College is subject to the tax nevertheless:  

The trouble is, Berea picks up the tab for tuition after all federal, state and private grants have been awarded. Because Berea students technically pay a portion of their tuition, they would be counted under Treasury’s guidelines.  Scholarships “provided by third parties, even if administered by the institution, are considered payments of tuition on behalf of the student,” Treasury wrote in the draft. “Accordingly, a student will be considered a tuition-paying student . . . if payment of any tuition or a fee is required for enrollment or attendance.”   

Here is the actual statement from the preamble (from page 11 of the proposed regulations):

For purposes of section 4968, the proposed regulations also provide that whether a student is “tuition-paying” is determined after taking into account any scholarships provided directly by the educational institution and any work study programs operated directly by the educational institution. However, scholarship payments provided by third parties, even if administered by the institution, are considered payments of tuition on behalf of the student. Accordingly, a student will be considered a tuition-paying student for purposes of section 4968 if payment of any tuition or a fee is required for the enrollment or attendance of the student for courses of instruction after the application of any scholarships offered directly by the institution or work study program operated directly by the institution. 

Proposed Regulation 53.4968-1(a)(3)(ii)(C) is essentially the same as the the preamble.  It appears to include as tuition paying students those whose tuition is paid by funds not directly granted by the school.  So it sure looks like Pell and state grant recipients will be counted as "tuition-paying" thus making colleges like Berea more likely to be hit by the tax.  An outcome that really makes no sense at all.  Certainly a student who pays no tuition out of pocket, even if as a result of receiving federal, state, or third party scholarships and grants, doesn't claim to be "tuition-paying."  Treasury should change that and I bet they will.  Doing so will at least give the tax some semblance of being moored by rational tax policy.  

In related news, the National Association of College and University Business Officers (NACUBO) have provided a first take look at the regulations.  


Darryll K. Jones



July 8, 2019 | Permalink | Comments (3)

Friday, July 5, 2019

ProPublica: "The Nonprofit Hospital That Makes Millions, Owns a Collection Agency and Relentlessly Sues the Poor"


From the "what else is new department," ProPublica, the nonprofit newsroom, has a new article describing Methodist Le Bonheur Healthcare's "dogged" pursuit of poor patients who are unable to pay their medical bills.  According to subsequent media reports, the Hospital has now suspended its debt collection practices in the wake of the report.  Here is an excerpt from ProPublica:

In July 2007, Carrie Barrett went to the emergency room at Methodist University Hospital, complaining of shortness of breath and tightness in her chest. Her leg was swollen, she’d later recall, and her toes were turning black.  Given her family history, high blood pressure and newly diagnosed congestive heart failure, doctors performed a heart catheterization, threading a long tube through her groin and into her heart.  Her share of the two-night stay: $12,019.

Barrett, who has never made more than $12 an hour, doesn’t remember getting any notices to pay from the hospital. But in 2010, Methodist Le Bonheur Healthcare sued her for the unpaid medical bills, plus attorney’s fees and court costs.  Since then, the nonprofit hospital system affiliated with the United Methodist Church has doggedly pursued her, adding interest to the debt seven times and garnishing money from her paycheck on 15 occasions.  Barrett, 63, now owes about $33,000, more than twice what she earned last year, according to her tax return.  “The only thing that kept me levelheaded was praying and asking God to help me,” she said.  She’s among thousands of patients the massive hospital has sued for unpaid medical bills. From 2014 through 2018, Methodist filed more than 8,300 lawsuits, according to an MLK50-ProPublica analysis of Shelby County General Sessions Court records. Older cases like Barrett’s, which dates back nearly a decade, remain on the court’s docket.

The article references and links to a June 25, 2019 study (subscription required) published in the Journal of the American Medical Association.  Here is a summary of that study:

An estimated 20% of US consumers had medical debt in collections in 2014.1 Medical debt has been increasing with direct patient billing, rising insurance deductibles, and more out-of-network care being delivered, even at in-network facilities. Bills sent directly to patients may use the undiscounted price of a hospital’s services and can result in financial hardship2 and avoidance of future medical care.3 Hospitals need to be paid for care delivered, but some bills are unpaid. Hospitals may negotiate, reduce, or write off payments. Some have begun adopting a range of aggressive strategies for collecting unpaid bills, including suing patients and garnishing their wages or bank savings.3 We examined garnishment legal actions among Virginia hospitals.

ProPublica continues with a citation to our colleague John Colombo, who is probably fly fishing somewhere as we speak: 

Methodist’s aggressive collection practices stand out in a city where nearly 1 in 4 residents live below the poverty line.  Its handling of poor patients begins with a financial assistance policy that, unlike many of its peers around the country, all but ignores patients with any form of health insurance, no matter their out-of-pocket costs. If they are unable to afford their bills, patients then face what experts say is rare: A licensed collection agency owned by the hospital.

Lawsuits follow. Finally, after the hospital wins a judgment, it repeatedly tries to garnish patients’ wages, which it does in a far higher share of cases than other nonprofit hospitals in Memphis.  Its own employees are no exception. Since 2014, Methodist has sued dozens of its workers for unpaid medical bills, including a hospital housekeeper sued in 2017 for more than $23,000. That year, she told the court, she made $16,000. She’s in a court-ordered payment plan, but in the case of more than 70 other employees, Methodist has garnished the wages it pays them to recoup its medical charges.

Nonprofit hospitals are generally exempt from local, state and federal taxes. In return, the federal government expects them to provide a significant community benefit, including charity care and financial assistance.  Methodist does provide some charity care — and pegs its community benefits as more than $226 million annually — but experts faulted it for also wielding the court as a hammer.  “If Warren Buffett walks in and needs a heart valve procedure and then stiffs the hospital, then yes, you should sue Warren Buffett,” said John Colombo, a University of Illinois College of Law professor emeritus who has testified before Congress about the tax-exempt status of nonprofit hospitals. “I can’t think of a situation in which thousands of your patients would fit that.”

Darryll K. Jones

July 5, 2019 | Permalink | Comments (1)

Wednesday, July 3, 2019

Senate Finance Opens Inquiry into Financial Relationships Between Opioid Manufacturers and Tax Exempt Organizations



WASHINGTON – Senate Finance Committee Chairman Chuck Grassley (R-Iowa) and Ranking Member Ron Wyden (D-Ore.) sent letters to 10 tax-exempt organizations, including pain advocacy groups, professional associations and medical associations, requesting information about their financial relationship with opioid manufacturers and other medical entities.

“We write to request information regarding your organization and its financial relationship with opioid manufacturers and other entities that manufacture products to treat pain. As Chairman and Ranking Member of the Senate Finance Committee, we have a responsibility to ensure transparency and accountability in matters that directly affect Federal healthcare programs and tax-exempt organizations. This responsibility includes examining the extent to which pharmaceutical manufacturers fund tax-exempt organizations and how these payments may influence pain treatment practices and policy,” the senators wrote.

“We acknowledge that the answer to the opioid epidemic continues to be anything but simple. However, we believe that it is important to shed light on these financial relationships to ensure transparency and accountability in matters that affect Federal healthcare programs and the patients that participate in them.”

The letters were sent to the following:

·       American Chronic Pain Association 

·       American Pain Society

·       American Society for Pain Management Nursing

·       American Society of Pain Educators

·       Center for Practical Bioethics

·       Federation of State Medical Boards

·       The Joint Commission

·       American Academy of Physical Medicine and Rehabilitation

·       Alliance for Patient Access

·       International Association for the Study of Pain


Among other things, the letters ask for complete Forms 990 from 2012 to present, including Schedule Bs, "detailed accounting of all payments/transfers received from any opioid manufacturers or distributors,  and descriptions of any collaborative activities with manufacturers or distributors.

Darryll K. Jones

July 3, 2019 | Permalink | Comments (0)

Charity Commission for England and Wales Issues Sweeping Report on Oxfam Sexual Abuse Allegations

The Charity Commission for England and Wales has completed a sweeping report on venerated charity, OXFAM International.  The report was prompted by reports of sexual abuse of Haitian women and children as far back as 2011.  OxFam has essentially admitted the findings, according to this BBC news report.  Here is an excerpt from the 36 page Report: 

3. Allegations of staff use of prostitutes and the involvement of minors

Unlike some other organisations at the time, Oxfam GB did have a code of conduct in place that made it clear that harassment, intimidation and exploitation was prohibited, as was “transactional sex with beneficiaries, sexual activity with persons under 18 or vulnerable people”. Its PSEA policy was that if prostitution was illegal in the country then it was prohibited under the Code of Conduct. However, it also gave a degree of discretion to local management about whether they could go further and ban staff using prostitutes more generally when it did not involve beneficiaries and was not an illegal activity in country. In this case, the local management would be or include the Country Director.  The internal investigation identified by admission and/or evidence that four2 staff under scrutiny either did or were suspected of using prostitutes, including on charity residential premises. The final report could not conclude whether minors were involved in some of the incidents investigated: 

“None of the initial allegations concerning fraud, nepotism, or use of under-age prostitutes was substantiated during the investigation, although it cannot be ruled out that any of the prostitutes were under-aged” [Inquiry emphasis].  From its examination of the internal investigation records available, and information and evidence provided to the Inquiry through its own enquiries, the Inquiry’s finding is that not all lines of enquiry about the use of prostitutes and/or minors’ involvement were fully pursued in 2011.
In the Inquiry’s view, the position on the legality and culpability of the parties for the various activities connected with prostitution was not clear until after the conclusion of the internal investigation. In any event, the external legal advice sought was not received until 1 September 2011 after the investigation findings were made and the outcome report had been finalised.

In light of the seriousness of the allegations and concerns that some females may have been under age, the Inquiry’s view is that the lines of enquiry about the nature and extent of what happened should have been pursued further. Given the serious nature of the allegations and potential risk of harm the 2011 CEO and the Director of International Programmes should have ensured and obtained sufficient evidence that the enquiries were fully followed up. With hindsight, the 2011 CEO publicly accepted in 2018 that more should have been done to follow up whether minors were involved. This was particularly important in the Inquiry’s view due to the significance and seriousness of the allegations.  

Oxfam GB proceeded on the basis that the allegation that the prostitutes were minors was found not to be true including when considering what to communicate internally and externally. However, the outcome report result left open the possibility those involved were under age.  Separately, Oxfam GB’s senior executive had to deal with the two emails dated 18 July 2011 and 20 August 2011. Both were said to be from a 13 year old about herself and a 12 year old girl and made different and further allegations of physical abuse and other misconduct involving Oxfam staff. The Inquiry was informed that it was suspected by Oxfam GB at the time, but not then proven, that they were not genuine. The Inquiry’s finding is that taking into consideration the seriousness of the allegations made in those emails, as well as the clear risks to the safety and security of those minors if the allegations were true, Oxfam GB should have tried harder and taken more steps at the time to identify the source of the concerns and followed up the allegations and concerns, notwithstanding they suspected them to be false.

This shortcoming has been acknowledged by Oxfam GB’s current chair who has accepted that: “Oxfam did not adequately investigate the allegations, received in an e-mail dated 18 July 2011, that minors were being sexually abused by Oxfam employees, nor did it report these allegations to the Commission or appropriate law enforcement agencies. This would not be the case now. Today, such a serious allegation would be dealt with very differently.” 

In May 2019, in response to the statement made by the current Chair of trustees, the 2011 CEO stated to the Inquiry that “At the time we believed that we had adequately followed up on these emails. We had been given reassurances by our staff that they had been to the convent and that there was no trace of these girls. We also believed that having a full investigation which resulted in nine people leaving our employment was the best way of ensuring that any ongoing abuse was immediately curtailed. I was dismayed to find out during the course of this inquiry that our investigations were not as full as they could have been. If these emails had been genuine I would want to know that they had been followed up as extensively as possible in order to find these individuals and ensure that they were safe. I am therefore relieved to know that we [now] have evidence backing up our understanding at the time that these emails were not genuine”.

The Inquiry’s view is that Oxfam GB should not have taken the risk with the safety of minors. It should have reported the possibility of two girls being at risk to the local law enforcement authorities. The matter was reported to law enforcement in the UK by both the Commission and Oxfam in 2018. The decisions about and handling of the matter at the time meant the charity exposed itself to undue risk, amounting to mismanagement in the administration of charity.  The Inquiry’s view is the focus of the Oxfam GB investigation at the time became about getting enough evidence to ensure the individuals of concern were removed from Haiti and Oxfam GB. The risk to and impact on the victims appeared to take second place and was not taken seriously enough.  Given the period of time that has passed, it will not be possible to conclude with sufficient certainty whether minors were involved or at risk.


You can read The Commission's "Official Warning" below the fold.  See also, the 142 page Statement of the Results of an Inquiry:  Oxfam.

Darryll K. Jones


Continue reading

July 3, 2019 | Permalink | Comments (0)

Tuesday, July 2, 2019

Run [Black Athlete] Run! California Moves Forward with Bill Allowing Student Athletes to Exploit Their Own NIL; NCAA Implies Boycott


In the late John Singleton's classic Movie, "Higher Learning," one of Ice Cube's finest acting performance, Cube portrays an angry black student at a predominantly white university.  Part of his anger is that he is not an athlete, he's "regular black," meaning he is treated by most people on campus as a thug, an unwanted concession to affirmative action, illegitimately occupying the space of some "deserving" white student.  When talking to one of the African American athletes, he succinctly explains the student-athlete's immunity from such daily slights  thusly:  "run ni**er run!" meaning that when his Black colleague can no longer run track or play football, or his eligibility is up, he will revert to unwanted "regular black" resulting in little if any financial benefit to the University. 

Very few athletes, and a good many non-athletes from wealthy families -- as we know from the Varsity Blues scandal -- would get into elite universities but for these tax exempt universities' desire to exploit their talents or parents' fortunes.  The NCAA's reaction thus far to the push to compensate student athletes for their participation in tax exempt amateur athletics is consistent with the hypocrisy, and inconsistent with the notion that an exempt organization is entitled to pay reasonable compensation for services as determined by reference to like services, by like organizations, under like circumstances (think NBA, NFL)."  

Recall that earlier this year, the National Collegiate Athletic Association lost yet another anti-trust case in which it sought to protect the alleged sanctity of its tax exempt "amateurism"  --  the one the court found was a complete farce, in which even most of the lowest paid D-1 paid coaches are pulling down six figures, and the highest gazillions, while the players make next to nothing.    Anyway, California is intent on taking one small step towards equity [not to mention sanity] by SB 206 which would prohibit the NCAA from enforcing rules preventing student athletes from being paid for their names, names, likeness, or images (NIL) for profit.  Seems a small thing, but the NCAA is fighting like its a National Championship game. Here is an excerpt from the bill, which most California newspapers expect will pass, followed by the NCAA's response: 


 . . .

(b) This act shall be known, and may be cited, as the Fair Pay to Play Act.

SEC. 2.

Section 67456 is added to the Education Code, to read (Section 2(a)(1)-(3) are most important):
(1) A postsecondary educational institution shall not uphold any rule, requirement, standard, or other limitation that prevents a student of that institution participating in intercollegiate athletics from earning compensation as a result of the use of the student’s name, image, or likeness. Earning compensation from the use of a student’s name, image, or likeness shall not affect the student’s scholarship eligibility.
(2) An athletic association, conference, or other group or organization with authority over intercollegiate athletics, including, but not limited to, the National Collegiate Athletic Association, shall not prevent a student of a postsecondary educational institution participating in intercollegiate athletics from earning compensation as a result of the use of the student’s name, image, or likeness.
(3) An athletic association, conference, or other group or organization with authority over intercollegiate athletics, including, but not limited to, the National Collegiate Athletic Association, shall not prevent a postsecondary educational institution from participating in intercollegiate athletics as a result of the compensation of a student athlete for the use of the student’s name, image, or likeness.
(b) A postsecondary educational institution, athletic association, conference, or other group or organization with authority over intercollegiate athletics shall not provide a prospective student athlete with compensation in relation to the athlete’s name, image, or likeness.
(1) A postsecondary educational institution, athletic association, conference, or other group or organization with authority over intercollegiate athletics shall not prevent a California student participating in intercollegiate athletics from obtaining professional representation in relation to contracts or legal matters, including, but not limited to, representation provided by athlete agents or legal representation provided by attorneys.
(2) Professional representation obtained by student athletes shall be from persons licensed by the state. Professional representation provided by athlete agents shall be by persons licensed pursuant to Chapter 2.5 (commencing with Section 18895) of Division 8 of the Business and Professions Code. Legal representation of student athletes shall be by attorneys licensed pursuant to Article 1 (commencing with Section 6000) of Chapter 4 of Division 3 of the Business and Professions Code.
(3) Athlete agents representing student athletes shall comply with the federal Sports Agent Responsibility and Trust Act, established in Chapter 104 (commencing with Section 7801) of Title 15 of the United States Code, in their relationships with student athletes.
(d) A scholarship from the postsecondary educational institution in which a student is enrolled that provides the student with the cost of attendance at that institution is not compensation for purposes of this section, and a scholarship shall not be revoked as a result of earning compensation or obtaining legal representation pursuant to this section.
(e) For purposes of this section, “postsecondary educational institution” means any campus of the University of California, the California State University, or the California Community Colleges, an independent institution of higher education, as defined in Section 66010, or a private postsecondary educational institution, as defined in Section 94858.
(f) This section shall become operative on January 1, 2023.

 I understand, of course, that big boosters might use the pretext of paying for name, likeness, or image to bribe athletes to play for their favorite teams, but there a better way than allowing everybody else except the athlete to get rich from athletes' NIL.  Besides, in the competition for athletic skill, there is already a decided lack of parity.  The Univesity of Florida gets all the talent (we all know this), Bama gets absolutely none.  Ok, I jest but you get the point.  But here is how the NCAA responded in a letter from NCAA President Mark Emmert to California Legislators about to pass the Bill. "When contrasted with current NCAA rules, as drafted the bill threatens to alter materially the principles of intercollegiate athletics and create local differences that would make it impossible to host national championships.  As a result, it likely would have a negative impact on the exact student-athletes it intends to assist. "

Just what "principles" are we talking about?  Because its definitely not amateurism, capitalism, or even Hansmann's market failure!  Media reports suggests that the NCAA is impliedly threatening to pull bowls games, like the "Granddady of them all (whoooooa nellie!)" from California unless the bill is withdrawn.  The bill, according to the guardians of exempt amateurism, threatens to harm those poor athletes whose names, likenesses, and images are being used by other folks making millions of dollars.  How magnanimous of the NCAA to care so much about the student athlete! 

Darryll K. Jones 



July 2, 2019 | Permalink | Comments (1)

Monday, July 1, 2019

Proposed Regs under 4968 to be Published in Federal Register July 3, 2019

Following up on Notice 2018-15, the Service will publish proposed regulations implementing IRC 4968 (Excise Tax on Net Investment Income of private colleges and universities) on Wednesday July 3, 2020 in the Federal Register.  Here is the Background portion of the preamble:

This document contains proposed regulations under section 4968 of the Internal Revenue Code (Code) to amend part 53 of the Excise Tax Regulations (26 CFR part 53). Section 4968 of the Code, added by section 13701 of the Tax Cuts and Jobs Act, Public Law 115-97, 131 Stat. 2054, 2167-68, (2017) (TCJA), imposes on each applicable educational institution, as defined in section 4968(b)(1), an excise tax equal to 1.4 percent of the institution's net investment income, and, as described in section 4968(d), a portion of certain net investment income of certain related organizations, for the taxable year.

Section 4968(b)(1) defines the term “applicable educational institution” as an eligible educational institution (as defined in section 25A(f)(2)) which during the preceding taxable year had at least 500 tuition-paying students, more than 50 percent of whom were located in the United States, is not a state college or university as described in the first sentence of section 511(a)(2)(B), and had assets (other than those assets used directly in carrying out the institution's exempt purpose) the aggregate fair market value of which was at least $500,000 per student of the institution.

Section 4968(b)(2) provides that, for purposes of section 4968(b)(1), the number of students of an institution (including for purposes of determining the number of students at a particular location) shall be based on the daily average number of full-time students attending such institution (with part-time students taken into account on a full-time student equivalent basis).

Section 4968(c) provides that, for purposes of section 4968, “net investment income” shall be determined under rules similar to the rules of section 4940(c).

Section 4968(d)(1) provides that, for purposes of determining aggregate fair market value of an educational institution's assets not used directly in carrying out its exempt purpose and for purposes of determining an institution's net investment income, the assets and net investment income of any related organization with respect to the institution shall be treated as assets and net investment income, respectively, of the educational institution, with two exceptions. First, no such amount shall be taken into account with respect to more than one educational institution. Second, unless such organization is controlled by such institution or is described in section 509(a)(3) (relating to supporting organizations) with respect to such institution for the taxable year, assets and net investment income which are not intended or available for the use or benefit of the educational institution shall not be taken into account.

Section 4968(d)(2) provides that the term “related organization,” with respect to an educational institution, means (1) any organization which controls, or is controlled by, such institution; (2) is controlled by one or more persons that also control such institution; or (3) is a supported organization (as defined in section 509(f)(3)), or a supporting organization (as described in section 509(a)(3)), during the taxable year with respect to the educational institution.

The Conference Report for the TCJA, H. Rept. 115-466, 115th Cong., 1st sess., December 15, 2017 (Conference Report), at 555, states that Congress intended that the Secretary of the Treasury promulgate regulations to carry out the intent of section 4968, including regulations that describe: (1) Assets that are used directly in carrying out an educational institution's exempt purpose; (2) the computation of net investment income; and (3) assets that are intended or available for the use or benefit of an educational institution.

In June 2018, the Treasury Department and the IRS issued Notice 2018-55 (2018-26 I.R.B. 773) (Notice) to provide interim guidance on certain issues related to the application of the tax imposed by section 4968. Specifically, Notice 2018-55 states that, in the case of property held on December 31, 2017, and continuously thereafter to the date of its disposition, the Treasury Department and the IRS intend to propose regulations stating that basis for purposes of determining gain (but not loss) shall be deemed to be not less than the fair market value of such property on December 31, 2017, plus or minus all adjustments after December 31, 2017, and before the date of disposition consistent with the regulations under section 4940(c). The Notice provides that, if the disposition of an asset would result in a capital loss, basis rules that are consistent with the regulations under section 4940(c) will apply. Accordingly, if the value of the asset declines after December 31, 2017, the taxpayer will recognize no gain; however, the taxpayer will recognize a loss only if the proceeds from the sale of the asset are less than the basis of the property as calculated without the special rule in the Notice to increase the basis to fair market value on December 31, 2017. The Notice additionally states that the Treasury Department and the IRS expect the proposed regulations to provide that losses from sales or other dispositions of property generally shall be allowed only to the extent of gains, with no capital loss carryovers or carrybacks, and that losses from sales or other dispositions of property by related organizations will be allowed to offset overall net gains from other related organizations or the applicable educational institution. The Notice provides that applicable educational institutions may rely on the Notice before the issuance of the proposed regulations. Finally, the Notice requests comments on any of the issues addressed in the Notice and on any additional guidance that is needed and whether, and what type of, transitional relief may be necessary.

The Treasury Department and the IRS received two comments in response to Notice 2018-55, which were considered in drafting these proposed regulations. The comments are available at or upon request.

For full text of the proposed regulations, click here.


Darryll K. Jones


July 1, 2019 | Permalink | Comments (0)

Another Congressional Demand on NRA

Full text of Representative Brad Schneider's (D Illinois) letter to NRA:   


June 26, 2019


Wayne LaPierre

Chief Executive and Executive Vice President  

National Rifle Association of America

11250 Waples Mill Road

Fairfax, VA  22030



Dear Mr. LaPierre,

As a member of the House of Representatives Committee on Ways and Means, I take very seriously the Committee’s oversight role of our nation’s federal tax laws and my responsibility in this process. It is with this duty in mind that I am requesting the National Rifle Association of America (NRA) make public documents that can help determine if wrongdoing by the NRA has occurred and whether these activities warrant reconsideration of the NRA’s tax-exempt status as an organization described in section 501(c)(4) of the Internal Revenue Code (IRC).

As I am sure you are aware, the allegations against the NRA reported in The New Yorker on April 17, 2019, include instances of egregious self-dealing, deceptive billing practices, and preferences in contracting.[1] Additional reporting by The Wall Street Journal paints a disturbing picture of the internal struggle between NRA leadership, as well as its dispute with Ackerman McQueen Inc., and refers to various documents detailing possible improper operating practices. [2] And just two weeks ago, The Washington Post published an investigatory piece outlining questionable business dealings between NRA Board members and the NRA, which suggests the possibility of private inurement, which as you know, violates Section 501(c)(4) of the IRC.[3]

The American public deserves to know whether your tax-exempt organization is operating according to its intended social welfare purpose. Therefore, I respectfully request you provide my office the following information by Tuesday, July 9, 2019:


  1. Clarify the details around the “Crisis Management Committee” announced by former Board President Lt. Col. North, including if/when this Committee met, its membership, any documents it produced, or the reason(s) this committee did not perform any work.[4]
  2. Any correspondence from Lt. Col. North from 2019 in which he raised issues surrounding potential conflicts of interest, vendor arrangements, outside income, allegations of excessive compensation, or any issues related to the NRA Audit Committee.
  3. Any correspondence, or other documentation, relating to your allegation that Lt. Col. North and NRA Board member Dan Boren approached you, as you described, “styled, in the parlance of extortionists”, seeking to force your resignation and for preferential treatment for the NRA’s vendor Ackerman McQueen.[5] This request would include, but is not limited to, any documents or text messages to/from Christopher Cox.[6]Additionally, I ask that you confirm whether you reported this purported extortion attempt to any local, state, or federal law enforcement authority.
  4. Any documents, including correspondence, memorandums or reports, created from June-September 2018 for the NRA Audit Committee, NRA management, or any agent of the NRA relating to potential conflicts of interest, vendor arrangements, outside income, allegations of excessive compensation, or any issues to be discussed by the NRA Audit Committee.[7]
  5. For the period 2016 to present, any minutes, notes, or resolutions from Board of Directors meetings, including the Audit Committee, where related-party transactions or potential conflicts of interest were discussed.
  6. Any audits, investigations, or reviews conducted by the NRA, or its agents, relating to potential conflicts of interest, vendor arrangements, outside income, or allegations of excessive compensation, including any supporting or conclusory materials related to the aforementioned documents.[8]
  7. Explain how invoices from Ackerman McQueen were received, processed, verified, and, if applicable, audited from 2016 to present. If there was a change to that process during this time period, please explain the nature of that change. In addition, please provide a copy of the Services Agreement between Ackerman McQueen and the NRA.
  8. Explain the process in place for how the NRA Foundation decides to make transfers to the NRA, including the process for determining the amount of such grants or transfers. For the period 2016 to present, please provide any minutes, notes, or resolutions from the NRA Foundation where such grants or transfers were discussed.

I appreciate your timely consideration of my request and look forward to your response.



Bradley S. Schneider



[1] Mike Spies, “Secrecy, Self-Dealing, and Greed at the NRA,” The New Yorker, April 17, 2019.

[2] Mark Maremont, “NRA’s Wayne LaPierre Says He is Being Extorted, Pressured to Resign,” The Wall Street Journal, April 26, 2019.

[3] Beth Reinhard et al, “NRA Money Flowed to Board Members,” The Washington Post, June 9, 2019.

[4] My understanding is that the NRA Bylaws permit the NRA Board President to form board committees. On April 25, 2019, then-president Oliver North wrote a memo (currently in the public domain) to the NRA Executive Committee entitled “Formation of a Crisis Management Committee.”

[5] Apr. 25, 2019 Letter from Wayne LaPierre to the NRA Board, available at For example, your letter indicates your employee Millie Hallow “took notes” of some of the phone calls in question.

[6] On June 20, 2019, the NRA filed a lawsuit against Lt. Col. Oliver North in New York State Supreme Court alleging, among other things, that Mr. Cox was an “errant NRA fiduciary” and that he “participated in the Ackerman/North/Boren conspiracy.” See Complaint, NY State Supreme Court, New York County, at para. 48. Given Mr. Cox’s seniority at the NRA and his substantial control over the allocation of funds at the NRA, the possibility of this additional senior member of the non-profit organization being involved in wrongdoing is especially troubling.

[7] It has been publicly reported that the NRA Audit Committee held a meeting on July 30, 2018 in Fairfax, Virginia, and that this meeting included a discussion on related-party transactions, among other items. Reporting also indicated the NRA’s accounting staff, including the Managing Director of Tax and Risk Management, drafted several documents ahead of this meeting, including one entitled “List of Top Concerns for the Audit Committee.” In addition, the NRA’s own lawsuit against Ackerman McQueen references a September 2018 meeting of the NRA Audit Committee where the committee considered Lt. Col. North’s contract with Ackerman McQueen, among other items. See, NRA v. Ackerman McQueen, Amended Complaint, para. 24.

[8] The NRA has publicly stated “the NRA retained a third-party forensic accounting firm….” See, NRA v Ackerman McQueen, Amended Complaint, para, 20.



Darryll K. Jones

July 1, 2019 | Permalink | Comments (0)

Friday, June 28, 2019

Tennessee Nonprofit Hospital in Propublica Expose

Propublica has been doing great investigative work where they team up with local reporters to do some in depth reporting. They provide a nice recent look at Methodist Le Bonheur Healthcare, a nonprofit tax-exempt hospital, in Memphis Tennessee. 

The story documents the collection practices that Senator Grassley might be interested in as he starts up an investigation into nonprofit hospitals again.

The story states: "From 2014 through 2018, the hospital system affiliated with the United Methodist Church has filed more than 8,300 lawsuits against patients, including its own workers. After winning judgments, it has sought to garnish the wages of more than 160 Methodist workers and has actually done so in more than 70 instances over that time, according to an MLK50-ProPublica analysis of Shelby County General Sessions Court records, online docket reports and case files."

The primary focus of the story seems to be on the hospital's efforts to collect from its own employees: "It’s not uncommon for hospitals to sue patients over unpaid debts, but what is striking at Methodist, the largest hospital system in the Memphis region, is how many of those patients end up being its own employees. Hardly a week goes by in which Methodist workers aren’t on the court docket fighting debt lawsuits filed by their employer."

Furthermore, they look at the hospital's financial assistance policies. It's not clear whether they meet the Internal Revenue Code CHNA rules in section 501(r) applicable to nonprofit hospitals after the Affordable Care Act: "Methodist’s financial assistance policy stands out from peers in Memphis and across the country, MLK50 and ProPublica found. The policy offers no assistance for patients with any form of health insurance, no matter their out-of-pocket costs. Under Methodist’s insurance plan, employees are responsible for a $750 individual deductible and then 20% of inpatient and outpatient costs, up to a maximum out-of-pocket cost of $4,100 per year."

Philip Hackney


June 28, 2019 in Current Affairs, Federal – Legislative, In the News | Permalink | Comments (0)

Thursday, June 27, 2019

President Trump "jokes" about enforcing "Johnson Amendment" against his opponents

President Trump talked about the so called "Johnson Amendment" again the other day. The Johnson Amendment, as probably most of the readers of this blog know, is the language contained in section 501(c)(3) of the Internal Revenue Code that prohibits a charity hoping to maintain its status as exempt from federal income tax from intervening in any political campaign. I say so called as it was not called that on its entry to the Code, though this article does suggest it was LBJ who was the author of the language added to the Code in 1954.

The President, speaking before the Faith and Freedom Coalition conference in Washington stated: “Our pastors, our ministers, our priests, our rabbis . . . [are] allowed to speak again . . . allowed to talk without having to lose your tax exemption, your tax status, and being punished for speaking."  He then apparently jokingly cautioned that if a pastor spoke against him “we’ll bring back that Johnson Amendment so fast,” the president said to laughter, adding, “I’m only kidding.”

President Trump signed an executive order back in May. The law of course is still found within section 501(c)(3) and thus is a duly enforceable law. In my opinion, the executive order did not do anything to change the actual state of affairs of the meaning of the law or its interaction with other laws, such as the Religious Freedom Restoration Act, or constitutional rights. If anything, the current state of the law should work to protect those he jokingly threatened to use the state of the law against. 

The news article I cite to above unfortunately wrongly states the following: "The president has not undone the law, like he sometimes claims he has, but rather told the Treasury Department it can enforce at its own discretion — leaving the possibility that the Trump administration could only penalize churches that oppose the president."

Although the President has not undone the law, as the article correctly states, I say wrongly in two senses: (1) he has not told the Treasury Department that it can enforce at its own discretion - he only directs Treasury to apply the law with due regard to allowing individuals and organizations to speak when speaking from a religious perspective "where speech of similar character has, consistent with law, not ordinarily been treated as participation or intervention in a political campaign", and (2) it would be unlawful for the administration to penalize churches that oppose the president, and his executive order did not create that possibility of such unlawful action. If you have interest in more detail on the (obvious) legal problems associated with (2), I wrote about the legal reasons why it would be unlawful for the IRS to unequally enforce the law in such a way in a longer scholarly article here considering the claims that the IRS violated conservative organizations rights when it specifically used names of groups like the Tea Party in managing its application system.

Philip Hackney

June 27, 2019 in Church and State, Federal – Executive, Federal – Legislative, In the News, Religion | Permalink | Comments (0)

Tuesday, June 25, 2019

Ellen Aprill, 2019 Overview of Tax Issues for Synagogues and other Religious Congregations

Ellen Aprill of Loyola Los Angeles Law School has updated her guide for synagogues and religious congregations on managing common legal matters that such organizations face. It's a great service. I encourage you to check it out. It is called: 2019 Overview of Tax Issues for Synagogues and other Religious Congregations. Here is the abstract:

"The attached revises the guides for synagogues and other religions congregations that I posted in 2010. These new versions reflect applicable law as of June, 2019. They summarize the rules I have been most often asked in the many years I have given advice on these matters, primarily with the Jewish community. One guide is directed specifically at synagogues; the other to religious congregations generally. (I use the term “religious congregations” rather than “churches” to be more inclusive.)

In addition to an overview, each guide discusses: (a) requirements for setting compensation; (b) lobbying and campaign; (c) substantiation of charitable contributions; (d) charitable fundraising; (e) payroll taxes and withholding for clergy; (f) parsonage and housing allowances; and (g) discretionary funds.

These summaries of applicable rules is designed to help lay leaders and congregational staff, whether volunteer or professional. Given their purposes, they do not include citations to the applicable provisions of the Internal Revenue Code or tax regulations. Each topic appears on a single page, so that a particular page or particular pages can be easily distributed as needed. Readers have my permission to distribute these guides in whole or in part."

Philip Hackney

June 25, 2019 | Permalink | Comments (0)

Monday, June 24, 2019

Philip Hackney Introductory Post

As this is my first post on Nonprofit Law Prof Blog, I thought I would do an introductory post. Excited to be blogging here. My name is Philip Hackney, and I am an Associate Professor of Law at the University of Pittsburgh School of Law. I primarily teach tax law related courses and my scholarship focuses on nonprofit organizations, tax-exemption, tax law, and the IRS. You can see my scholarship here and you can see some articles I have written for more popular press here

I worked for five years at the Office of the Chief Counsel of the IRS in Washington DC regulating the nonprofit sector. That work very much influences my research and scholarship and likely what I will blog about here. For instance, I will likely speak about stories like the Taxpayer Advocate Service ("TAS") criticizing the IRS on its new Form 1023-EZ. I note this story because in TAS's 2020 Objectives Report to Congress, TAS again criticizes the IRS's management of its tax-exempt application system. The Form 1023 EZ is a relatively new cursory form that allows small nonprofits to quickly qualify with the IRS as tax exempt organizations. The form was a response to chronic backups at the IRS for approval of routine applications for tax-exemption. TAS is not wrong about the problems raised by the adoption of Form 1023 EZ, a form that will be abused. Charities that should not get tax benefits will be approved by the IRS as a result of the cursory form. The IRS is not doing the kind of audit work that will ensure those organizations are caught. But the reality is that the IRS does not have the resources to do the oversight of the nonprofit sector to the extent many people seem to want. I don't want to get deeply into this issue here, other than to highlight a perspective that I try to bring to the table, which is that as we think about the nonprofit community it is important to be realistic about the resources we are willing to dedicate to their oversight -- not much -- and then work from there.

I will also blog about the role of nonprofits in our democracy. Values of democracy deeply inform my scholarship, and I will work to highlight the democratic role, or often lack thereof, of nonprofit entities in the US, states, and local governments. Because I believe the well-working of our nonprofit community in its democratic role is critical to the governance fabric of our nation, I think thoughtful laws and well operated oversight of the sector matters greatly. I hope to talk about that.

My wife, who is an artist, and I are deeply engaged in the arts community. I have taken an interest in art law as a result and will likely blog about art law matters as well, particularly as they intersect with nonprofits.

Look forward to interacting with this community. 

Philip Hackney

June 24, 2019 in Other, Studies and Reports, Weblogs | Permalink | Comments (0)

Legal Barriers to Cross-Border Philanthropy in Europe Event

ERNOPI am off to Basel, Switzerland next week for an event focusing on Legal Barriers to Cross-Border Philanthropy in Europe.  (I know, the hard life of an academic.) I helped organize the event along with Oonagh Breen (University College Dublin) and Hanna Surmatz (European Foundation Centre (EFC)). The event will be held the afternoon before the biennial European Research Network on Philanthropy (ERNOP) conference at the University of Basel. It is particularly timely because of two significant European philanthropy developments earlier this year: the release by the European Economic and Social Committee of an opinion titled European Philanthropy: An Untapped Potential; and the publication by EFC and the Donors and Foundations Networks in Europe (DAFNE) of a European Philanthropy Manifesto. These two developments reportedly have created new momentum among policymakers to address the barriers to philanthropy in Europe, including philanthropy across borders.

Here is the current program for the event:

13:00-14:15: Session One: European Regulatory Measures
Oonagh B. Breen, UCD Sutherland School of Law (moderator)
Dominque Jakob, Universität Zürich
Wino Van Veen, Vrije Universiteit Amsterdam

14:30-15:45: Session Two: Taxation
Lloyd Hitoshi Mayer, University of Notre Dame (moderator)
Anne-Laure Paquot, Transnational Giving Europe
Giedre Lideikyte-Huber, Université de Genève
Hanna Surmatz, European Foundation Centre

16:00-17:15: Session Three: Emerging Issues
Hanna Surmatz, European Foundation Centre (moderator)
Francesca Fanucci, European Center for Not-for-Profit Law
Isabel Peñalosa-Esteban, Spanish Association of Foundations

Lloyd Mayer

June 24, 2019 in Conferences, International | Permalink | Comments (0)

Thursday, June 20, 2019

SCOTUS: Nonprofits, State Action, and the First Amendment

Supreme CourtIn a relatively unnoticed decision earlier this week, the Supreme Court of the United States reached a decision that could provide an additional reason for governments to outsource activities to nonprofits. Manhattan Community Access Corp. v. Halleck involved whether a nonprofit organization was a state actor subject to the First Amendment when New York City delegated the operation of public access cable channels to it. In a 5-4 decision, the Court concluded that it was not because managing public access channels is not "a traditional, exclusive public function." (The City also did not compel the nonprofit to take the alleged action at issue or act jointly with the nonprofit, either of which could have been alternate grounds for finding the nonprofit was a state actor for these purposes.) The majority held that very few functions are traditional, exclusive public functions, and the function at issue was not one of those few. The dissent's very different take was that the public access channels are a public forum and the City could not avoid the First Amendment's application to the forum by delegating management of it to a private entity, here the nonprofit. 

This decision creates an additional incentive for governments to delegate the management of activities to private entities, including nonprofits. If the activity is speech-related, and the government is careful not to direct the nonprofit regarding its speech-related decisions, those decisions may often not be subject to First Amendment limits. Presumably if the government delegated that management to a private entity with a known, speech-related bias with the intent of seeing that bias implemented even though the First Amendment would prevent the government from doing so directly, that would be problematic. But of course proving intent along these lines could often be very difficult, even if it exists. 

Additional Coverage: PrawfsBlawg; SCOTUSblog.

Lloyd Mayer 

June 20, 2019 in Federal – Judicial | Permalink | Comments (1)