Thursday, August 15, 2019

Klees & Berg: Are Tax-Exempt Investors Really Tax-Exempt?

Klees_berg-main_iEdward H. Klees (Hirschler Law) and Mark E. Berg (Feingold & Alpert) have published a short commentary title Are Tax-Exempt Investors Really Tax-Exempt? on the Pensions & Investments website (photo from that website). Here is the introduction:

Call us old-fashioned, but we think of tax-exempt institutions as exempt from taxes.

Under a federal law that took effect in 2018, however, the IRS may audit investment funds structured as limited partnerships, limited liability companies or other pass-through vehicles and collect any resulting underpayments of the investors' income taxes from the fund itself. Unless its governing documents say otherwise, the fund may pass along the bill to its investors, including tax-exempts, however it sees fit, even though none of the tax is attributable to the tax-exempt investors. Plus, if the fund is unable to obtain reimbursement from a taxable investor for its share of the tax, the other investors, including tax-exempts, could be required to pony up. Unfortunately, the contracts we have seen so far leave the door open for these outcomes.

We note some possible fixes below. If left unaddressed, the potential tax liability in investment funds is a ticking time bomb for tax-exempt investors. Until such time as fund documents evolve toward provisions more favorable to tax-exempt investors, it is essential that tax-exempts and their advisers be aware of the implications of the new tax audit rules and the possible solutions to the significant problems they raise.

Lloyd Mayer

August 15, 2019 in Publications – Articles | Permalink | Comments (0)

Klimon: Beyond the Board: Alternatives in Nonprofit Corporate Governance

21970_imageWilliam M. Klimon (Caplin & Drysdale) has published Beyond the Board: Alternatives in Nonprofit Corporation Governance, Harvard Business Law Review Online (2019). It is a detailed and fascinating account of how flexible many state laws are regarding the governance structures of nonprofit corporations. Here is the introduction (citations omitted):

The diversity of the nonprofit sector is manifold. There is great variety in organizational form; nonprofit organizations have long been structured as corporations, charitable trusts, and unincorporated associations. Now the Internal Revenue Service (IRS) has recognized the exempt status of standalone limited liability companies. Likewise, the range of activities across the sector is stunning: healthcare, education, welfare, religion, the arts, and the environment. And even within those fields the diversity astounds: from a tiny free clinic to the Adventist Health System; from a new public charter school to Harvard University; from a Primitive Baptist chapel to the thousands of Roman Catholic congregations, orders, and organizations; from a community theater to the Metropolitan Opera. That immense diversity has affected even the relatively uniform world of nonprofit corporate governance.

The basic principle of board governance remains the standard for nonprofit corporations: “[e]ach nonprofit corporation must have a board of directors.” But attempting to legislate for such a diverse sector has led lawmakers to realize that one size does not fit all and not every nonprofitmaking corporation is best served by traditional board governance. Consequently, the various state nonprofit corporation statutes include a really amazing variety of mechanisms to deviate from, supplement, or even override that basic principle.

The following discussion reviews many of these mechanisms. Reference will be made repeatedly to the Revised Model Nonprofit Corporation Act, promulgated by the Business Law Section of the American Bar Association (ABA) in 1987 and subsequently adopted by at least half of the states. The widespread adoption of that model law makes it a useful touchstone for exploring alternatives to board governance. But the great variety of nonprofit governance innovations is not ignored and several nonuniform state-specific provisions are also discussed.

Lloyd Mayer

August 15, 2019 in Publications – Articles | Permalink | Comments (0)

Smith: Exploiting the Charitable Contribution Deduction's Hypersalience

EricSmithLow-sepia_250x328Eric Smith (Weber State University) has posted Exploiting the Charitable Contribution Deduction's Hypersalience, Utah Law Review (forthcoming). Here is the abstract:

Hypersalience describes the cognitive error that occurs when taxpayers are highly aware of a tax provision generally, but fail to correctly perceive its associated limitations. The charitable contribution deduction provides a strong example of hypersalience as taxpayers have general awareness that tax benefit follows charitable giving, but often fail to understand the deduction’s limits—most notably the standard deduction’s preclusion to any direct tax benefit for charitable giving. As cognitive error drives inaccurate perception of the tax law, the question arises: what, if anything, should the government do to correct taxpayer understanding?

This paper considers this question from two perspectives. The first is market or economic salience, a measure of salience based on taxpayer reaction towards the market. The case is made here for exploitation of hypersalience—an argument that endorses the status quo. Effective curtailment of hypersalience could bear with it constitutionally worrisome burdens on free speech and an overregulated, less viable charities sector. Benefits of leaving hypersalience intact include a more vibrant charities sector. In some cases, giving induced by hypersalience could result in zero utility loss. 

The second measure, political salience, considers taxpayer reaction as expressed through the political process. This paper argues that exploitation of hypersalience is justifiable in that taxpayers could interpret additional regulation to correct hypersalience as a tax increase (or at least as the denial of perceived tax benefit). Given the taxpaying electorate’s strong aversion to taxes, in an era of political polarization and massive deficits, Congress can ill afford to expend constrained political capital unwinding taxpayer cognitive bias with no increase in revenues.

Lloyd Mayer

August 15, 2019 in Publications – Articles | Permalink | Comments (0)

Tuesday, August 13, 2019

The Debate Over Donor-Advised Funds: New Research & New Data

UnnamedThere have been several notable recent additions to the donor-advised fund (DAF) debate. In June, H. Daniel Heist (U. Penn Social Policy & Practice) and Danielle Vance-McMullen (DePaul School of Public Service) published Understanding Donor-Advised Funds: How Grants Flow During Recessions, Nonprofit and Voluntary Sector Quarterly (2019). Here is abstract:

Donor-advised funds (DAFs) are becoming increasingly popular in the United States. DAFs receive a growing share of all charitable donations and control a sizable proportion of grants made to other nonprofits. The growth of DAFs has generated controversy over their function as intermediary philanthropic vehicles. Using a panel data set of 996 DAF organizations from 2007 to 2016, this article provides an empirical analysis of DAF activity. We conduct longitudinal analyses of key DAF metrics, such as grants and payout rates. We find that a few large organizations heavily skew the aggregated data for a rather heterogeneous group of nonprofits. These panel data are then analyzed with macroeconomic indicators to analyze changes in DAF metrics during economic recessions. We find that, in general, DAF grantmaking is relatively resilient to recessions. We find payout rates increased during times of recession, as did a new variable we call the flow rate.

Earlier this month Candid (formerly the Foundation Center and GuideStar), released the results of a community foundation survey. Included in those results is the following information regarding donor-advised funds maintained by the surveyed foundations (citations omitted):

Product Mix: On average, donor advised funds make up more than a third of assets for community foundations larger than $250M. Although DAFs continue to grow, they don't appear to comprise significantly more of respondents' asset bases than in previous years.

Total Donor Advised Fund Assets, Gifts, and Grants: Aggregate community foundation donor advised fund (DAF) asset, gift, and grant totals all saw a higher rate of increase in FY18 than the field as a whole. DAF grantmaking grew at a higher rate (4%) than assets and gifts (2% each).

Donor Advised Fund Flow Rate: The "flow rate" of DAFs compares a given year's grantmaking total with its gift total, dividing grants by gifts. This metric may help capture the activity of donors who contribute to their DAF and grant from it that same year. As with distribution rate and other measures of DAF activity in this survey, data is collected in the aggregate by sponsoring community foundation. Data collection on the account level would be necessary to analyze the activity of individual DAF holders. 39% of FY18 Columbus Survey respondents had a DAF flow rate of over 100%, meaning that they granted out more from DAFs than they received that year. 

Distribution Rates: DAFs at community foundations tend to be highly active grantmaking vehicles; more than half (53%) of all survey respondents granted more than 10% of their DAF assets out in FY2018. Larger community foundations, which as noted above tend to carry more non-endowed assets, also have the highest distribution rates.

Hat tip: Nonprofit Quarterly.

Finally, a piece in the Nonprofit Quarterly written by Alfred E. Osborne, Jr. (UCLA Anderson School of Management and also Fidelity Charitable Board Chairman) titled Fidelity Charitable 2019 DAF Grants Spike: How Donor-Advised Funds Changed Giving for the Better triggered a response (in the comments) from Al Cantor raising issues about Fidelity Charitable's influence over news coverage of it that is worth reading along with the main article.

Lloyd Mayer

August 13, 2019 in In the News, Publications – Articles, Studies and Reports | Permalink | Comments (0)

Monday, August 12, 2019

Congressional and Academic Scrutiny of Conservation Easements Continues

We have previously blogged about congressional, DOJ, and IRS scrutiny of conservation easement donations, as well as academic coverage of this topic led by our contributing editor, Nancy A. McLaughlin (Utah). This scrutiny shows no signs of abating, with the following developments just in the past couple of months:

  • Senators Chuck Grassley and Ron Wyden, Chair and ranking member of the Senate Finance Committee, sent three letters in June asking for further answers to their questions relating to syndicated conservation easements. Hat tip: Tax Analysts (Fred Stokeld) (subscription required).
  • That followed a June report (revised slightly in July) from the Congressional Research Service describing the concerns regarding abuse of conservation easement tax breaks.

With organizations that support appropriate tax breaks for legitimate conservation easements, such as the Land Trust Alliance, trying to avoid having Congress throw the baby out with the bath water, while DOJ and the IRS battle promoters and contributors of allegedly abusive conservation easement donations in the courts, it will be interesting to see how this issue ultimately shakes out both legislatively and in litigation.

Lloyd Mayer

August 12, 2019 in Federal – Executive, Federal – Legislative, Publications – Articles, Studies and Reports | Permalink | Comments (1)

Friday, August 9, 2019

Aprill: Revisiting Federal Tax Treatment of States, Political Subdivisions, and their Affiliates

Aprill-Ellen-faculty-profile-2000pxEllen Aprill (Loyola LA Law) posted Revisiting Federal Tax Treatment of States, Political Subdivisions, and their Affiliates to SSRN (Florida Tax Review, forthcoming).  Here is the abstract:

Several provisions of the 2017 tax legislation, known as Tax Cuts and Jobs Act (TCJA), focused attention on federal taxation of states, their political subdivisions and their affiliates. Most prominently, TCJA limited the federal income tax deduction for state and local taxes to $10,000. States have sued and attempted work-arounds. Another provision, which imposes an excise tax of 21% on “excessive compensation” paid by certain entities not subject to income tax, inadvertently failed to subject to tax entities that are integral parts of states or political subdivisions or are themselves political subdivisions. Calls for a technical correction have so far gone unheeded.

More than twenty years ago, I wrote two articles about federal taxation of state governments, political subdivisions, and their affiliates. The Teacher’s Manual to a leading casebook on nonprofit organizations describes these two articles as “as much as anyone knows about this confusing patchwork and its ramifications.” The passage of time, changes in my own thinking and new developments call for my returning to this topic. I do so here. Moreover, far more than in my earlier work, I examine the applicable rules regarding charitable contribution deductions to these entities as well as discuss the special rules applicable to governmental charities and the category of charities that lessen the burdens of government. 

In light of the 2017 tax legislation, I not only renew recommendations made long ago, but also extend them to the criteria for exempting entities that lessen the burdens of government, a category that has received little scholarly attention. I also call for establishing a system by which states, political subdivisions, and their affiliates could receive determination letters, like those issued to section 501(c) organizations and thus familiar to potential donors. Such an approach would avoid the distortion of the rules applicable to section 501(c)(3) that arises from the current special treatment of governmental charities. Treating governmental entities as a distinct category under the Internal Revenue Code, with their own criteria and their own determination letter, would also acknowledge and honor their role in our federalist system.

 

Nicholas Mirkay

 

August 9, 2019 in Federal – Legislative, Publications – Articles | Permalink | Comments (0)

Thursday, August 8, 2019

Quinn: Wealth Accumulation at Elite Colleges, Endowment Taxation

Mae Quinn (Florida-Levin College of Law) posted Wealth Accumulation at Elite Colleges, Endowment Taxation, and the Unlikely Story of How Donald Trump Got One Thing Right to SSRN (Wake Forest Law Review, forthcoming).  Here is the abstract:

President Donald Trump has declared war on immigrants, diversity, and those who dare to dissent. Rooted in resentments about who people are, where they were born, and what they believe, these executive-led assaults are dangerous developments in the modern era. However, in the course of Trump's many retrograde tirades, he has somehow managed to get one thing right-too many elite private colleges in the United States, considered nonprofit entities, have amassed way too much wealth.

This Article recounts this unlikely story, including how the Trump Administration's 2017 endowment tax could work to advance diversity. The new endowment tax penalizes private colleges for stockpiling assets. In response, potentially impacted universities have argued they are victims of an unfair conservative conspiracy intended to target liberal ideology. But the data demonstrates that this is not true. And concerns about rich colleges hoarding their resources have come from both the right and the left.

Moreover, Trump's endowment tax could be seen as an opportunity and invitation to increase egalitarianism and equity in this country. If rich colleges simply utilize more of their massive savings to further social justice, impact poverty, and enhance public good-particularly in their own at-risk communities-they will not only avoid federal taxation but also begin to address critiques about their elitism and greed. In doing so such universities would not only thwart Trump and his tax but stand with vulnerable groups who are the true victims of the Trump Administration's ever-expanding conservative attacks. 

Nicholas Mirkay

August 8, 2019 in Federal – Executive, Federal – Legislative, Publications – Articles | Permalink | Comments (1)

Wednesday, August 7, 2019

Moffa & Flaherty: Conserving a Vision: Acadia, Katahdin, and the Pathway from Private Lands to Park Lands

Anthony Moffa (Maine Law) & Sean Flaherty have posted Conserving a Vision:  Acadia, Katahdin, and the Pathway from Private Lands to Park Lands to SSRN (published in Maine Law Review).  Here is the abstract:

Although a century separates the official designations, the strategies required to ensure federal protection of Maine’s two National Park Service areas — Acadia National Park and Katahdin Woods and Waters National Monument — closely track one another. In both cases, a handful of enterprising conservationists shared the vision for conservation. Both areas depended on the private acquisition, and donation, of title to the numerous parcels that comprised them before the land could garner federal protection. Politics in the early twentieth and twenty-first centuries had to be overcome. This work tells the stories in parallel, highlighting and analyzing four strands of similarity to not only deepen our understanding of these particular areas in Maine, but also to guide future conservationists aiming to convert privately held land to federally managed and protected land.

Nicholas Mirkay

August 7, 2019 in Publications – Articles | Permalink | Comments (0)

Adediran: Solving the Pro Bono Mismatch

Atinuke Adediran (Fellow, University of Chicago) posted Solving the Pro Bono Mismatch to SSRN (Colorado Law Review, forthcoming).  Here is the abstract:

This article addresses the incongruity between the interests of law firm lawyers and the needs of the poor. The mismatch problem is one of the most important barriers in the delivery of legal services, resulting in the neglect of legal areas where need is greatest. This Article makes three major contributions to the pro bono mismatch literature. First, the Article provides fresh understandings about how the interests of individual lawyers factor into the selection of pro bono matters. Second, the Article offers a much needed and critical exploration of the role of law firm culture on pro bono choice for firms and individual lawyers. Third, the Article adds a new dimension to the literature on how extrinsic factors impact pro bono work. Here, I highlight the role of the political climate on pro bono choice. Using interview-based qualitative research, the Article explores how these factors lead law firm lawyers to presently demand pro bono immigration matters, even while legal need is greatest in housing and family law. This asymmetry has left nonprofit legal services organizations scrambling to find pro bono representation, or relying on very limited resources for poor clients. The Article concludes with proposals to address the pro bono mismatch.

 

Nicholas Mirkay

August 7, 2019 in Publications – Articles | Permalink | Comments (0)

Tuesday, July 30, 2019

HistPhil on the Dartmouth College Case

Wednesday, June 19, 2019

Form 990 Electronic Filing About to Become Mandatory, Along with Release in Machine Readable Form

DataCongress has passed the Taxpayer First Act (H.R. 3151), and President Trump is expected to sign the bill. Almost at the very end of the bill, after numerous other improvements to tax procedures, is a section that will require tax-exempt organizations to electronically file their Form 990 series returns and the IRS to publicly release the data from these returns in machine readable format "as soon as practicable." The Secretary of the Treasury, or his delegate, may delay the mandatory electronic filing for up to two years for financially smaller organizations if not doing so would cause an undue burden. The bill also requires the government to notify organizations that fail to file a required annual return for two years in a row, if a third consecutive missed filing will lead to automatic revocation of the group's tax-exempt status.

As detailed in (shameless plug) my article on Big Data and nonprofits, these changes will provide researchers, journalists, and other members of the public with an enormous amount of information about tax-exempt organizations. While these data will require a significant amount of work to be usable, there is already a Nonprofit Open Data Collective in place to do this work. The much easier access to this information that this legislation will provide holds the promise of greatly expanding the ability to research most organizations in the nonprofit sector.

Lloyd Mayer

June 19, 2019 in Federal – Executive, Federal – Legislative, In the News, Publications – Articles | Permalink | Comments (0)

Wednesday, June 12, 2019

Federal Tax Policy and Individual Charitable Giving

The Independent Sector recently released research on the relationship between federal tax policy and individual charitable giving. The study attempts to quantify the lost individual charitable revenue from the 2017 tax changes, and the effect that these five new policies would have on charitable giving:

  1. Deduction identical to itemizers’ tax incentive;
  2. Deduction with a cap in which gifts over $4,000 or $8,000 do not receive an incentive;
  3. Deduction with a modified 1% floor, in which donors can deduct half the value of their gift if it is below 1% of their income and the full amount of the donation above 1%;
  4. Non-refundable 25% tax credit; and
  5. Enhanced deduction that provides additional incentives for low- and middle-income taxpayers

The study concludes that "all five policies could bring in more donor households and four of the five policies could bring in more charitable dollars than could be lost due to recent tax changes[, and f]our of the five tax policies could generate more giving than cost to the government."

-Joseph Mead

June 12, 2019 in Federal – Legislative, Publications – Articles | Permalink | Comments (1)

Friday, May 17, 2019

Eldar: Designing Business Forms to Pursue Social Goals

EldarOfer Eldar (Duke University) has posted Designing Business Forms to Pursue Social Goals, Virginia Law Review (forthcoming). Here is the abstract:

The long-standing debate about the purpose and role of business firms has recently regained momentum. Business firms face growing pressure to pursue social goals and benefit corporation statutes proliferate across many U.S. states. This trend is largely based on the idea that firms increase long-term shareholder value when they contribute (or appear to contribute) to society. Contrary to this trend, this essay argues that the pressing issue is whether policies to create social impact actually generate value for third-party beneficiaries — rather than for shareholders. Because it is impossible to measure social impact with precision, the design of legal forms for firms that pursue social missions should incorporate organizational structures that generate both the incentives and competence to pursue such missions effectively. Specifically, firms that have a commitment to transacting with different types of disadvantaged groups demonstrate these attributes and should thus serve as the basis for designing legal forms.

While firms with such a commitment may be created using a variety of control and contractual mechanisms, the related transaction costs tend to be very high. This essay develops a social enterprise legal form that draws on the legal regime for Community Development Financial Institutions (“CDFIs”) and European legal forms for work-integration social enterprises (“WISEs”). This form would certify to investors, consumers and governments that designated firms have a commitment as social enterprises. By obviating the need for costly social impact measurement, this form would facilitate the provision of subsidy-donations to social enterprises from multiple groups, particularly investors (through below-market investment) and consumers (via premiums over market-prices). Thus, this social enterprise form would be to altruistic investors and consumers what the nonprofit form is to donors.

Moreover, the proposal could facilitate the flow of investments by foundations in social enterprises (known as program-related investments, “PRIs”) because it would help foundations verify the social impact of their investees, which could help them avoid potential tax penalties. In addition, by giving subsidy-providers greater assurance that social enterprises pursue social missions effectively, the proposed legal form could facilitate public markets for social enterprises.

Lloyd Mayer

May 17, 2019 in Publications – Articles | Permalink | Comments (0)

Chen & Liu: Regulating Provisions of Charitable Activities by Religious Organizations

Chen-jianlin Liu_LovedayJianlin Chen (University of Melbourne) and Junyu Loveday Liu (London School of Economics & Political Science; K&L Gates) have published Managing Religious Competition in China: Regulating Provisions of Charitable Activities by Religious Organizations, in Regulating Religion in Asia: Norms, Modes and Challenges (Cambridge University Press 2019). Here is the abstract:

Drawing on the Law & Religious Market theory, this Chapter utilizes the case study ofChina to explain 1) how regulation of ostensibly non-economically motivated activities(i.e., religion and charity) can be properly conceived as a form of market regulation; and, 2) how such a conception can add a valuable dimension to the discourse. In particular, this Chapter situates China’s regulation of charitable activities by religious organizationsin the context of recent major legal reform on charity law and highlights the contradictory treatment where, on one hand, the law recognizes the self-interested motivation of participants and donors of charitable activities and accommodates their co-opting of charitable activities to promote or advance commercial interests but, on the other hand, specifically prohibits religious organizations from any religiouspropagation during provisions of charitable services. This Chapter argues that from the perspective of market regulation, such denial of religious “self-interest” hampers the purported policy objectives of promoting greater religious participation in charitableactivities but may be justified on the grounds that it promotes religious competition that is normatively desirable.

Lloyd Mayer

May 17, 2019 in International, Publications – Articles, Religion | Permalink | Comments (0)

Wednesday, April 24, 2019

Everything You Wanted to Know About 501(c)(4)s But Were Afraid to Ask

Friday, March 29, 2019

Breen, Dunn & Sidel: Riding the Regulatory Wave

Oonagh B. Breen (University College Dublin), Alison Dunn, and Mark Sidel (Wisconsin) have published Riding the Regulatory Wave: Reflections on Recent Explorations of the Nonstatutory Nonprofit Regulatory Cycles in 16 Jurisdictions in the Nonprofit and Voluntary Sector Quarterly. Here is the abstract:

This article explores both state-based regulation and self-regulation, shared narratives, and lessons to better understand the interaction of these two forms of regulation in the nonprofit space. “The Context” section outlines six preliminary research questions that inform the work. “The Framework” section then outlines the regulatory framework, focusing on various regulatory motivations, before “The Findings” section turns to country findings. In unpacking some of the major findings, we look first at state perspectives on the role of regulation before considering the sector’s perspective. Taking both on board enables us to configure the relationship spectrum between state and sector when it comes to regulation and to begin to identify, based on the 16 case studies undertaken, the most common triggers for regulatory change identified therein and to reframe them through the development of a series of five regulatory propositions and seven environmental variables to help understand how different forms of regulation are triggered and interact.

Lloyd Mayer

March 29, 2019 in Publications – Articles | Permalink | Comments (0)

Thursday, March 14, 2019

Mayer: The Promises And Perils Of Using Big Data To Regulate Nonprofits

Lloyd Hitoshi Mayer (Notre Dame) has posted his article, The Promises and Perils of Using Big Data to Regulate Nonprofits, to SSRN (forthcoming in the Washington Law Review).  Here is a brief abstract:

For the optimist, government use of “Big Data” involves the careful collection of information from numerous sources and expert analysis of those data to reveal previously undiscovered patterns and so revolutionize the regulation of criminal behavior, education, health care, and many other areas. For the pessimist, such use involves the haphazard seizure of information to generate massive databases that render privacy an illusion and result in arbitrary and discriminatory computer-generated decisions. The reality is of course more complicated, with government use of Big Data presenting on one hand the promises of greater efficiency, effectiveness, and transparency, and on the other hand the perils of inaccurate conclusions, invasion of privacy, unintended discrimination, increased government power, and violations of other legal limits on government action.

Until recently, these issues were theoretical for nonprofits in the United States given that the federal and state regulators overseeing them did not use a Big Data approach. But nonprofits can no longer ignore these issues, as the primary federal regulator is now emphasizing “data-driven” methods to guide its audit selection process, and state regulators are moving forward with plans to create a single, online portal to collect required filings. And both federal and state regulators are making or plan to make much of the data they collect available in machine-readable form to researchers, journalists, and other members of the public. The question now is therefore whether regulators, researchers, and nonprofits can learn from the Big Data experiences of other agencies and private actors so as to fully realize Big Data’s promises while avoiding the numerous perils it presents.

This Article explores the steps that nonprofit regulators have taken toward using Big Data techniques to enhance their ability to oversee the nonprofit sector. It then draws on the Big Data experiences of government regulators and private actors in other areas to identify the potential promises and perils of this approach to regulatory oversight of nonprofits. Finally, it recommends specific steps those regulators and others can take to ensure that the promises are achieved and the perils avoided.

 

Nicholas Mirkay

March 14, 2019 in Publications – Articles | Permalink | Comments (0)

Tuesday, March 12, 2019

Galle: Empirical Assessment of the Tax Exemption for Charitable Property

Brian Galle (Georgetown) has authorized a research paper entitled, "The Tax Exemption for Charitable Property: An Empirical Assessment," which he recently presented at Duke's Tax Policy Workshop Series.  Here is his brief abstract:

I offer the first multi-jurisdictional assessment of the balance-sheet effects of the property-tax exemption for charitable property. I combine a manually-assembled dataset of property tax rates in over 4,000 municipalities with three large samples of firm-level administrative data, as well as hand-coded variations in the legal details of different states’ exemption regimes, to assemble a panel of more than 1 million firm-years.

As expected, exemption causes charities to utilize more real property as tax rates rise. I offer new theoretical contributions showing that this effect, previously described as an unwanted distortion, may be second-best efficient in the presence of an income tax with accelerated depreciation, and confirm empirically the predictions of this new theory.

Exemption also increases managerial compensation while crowding out efforts to raise revenue through donations and commercial activity. Lastly, exemption eases liquidity constraints on colleges and universities, allowing them to expand enrollment while holding per-student costs level.

[Hat tip:  TaxProf Blog]

Nicholas Mirkay

March 12, 2019 in Paper Presentations and Seminars, Publications – Articles | Permalink | Comments (0)

Understanding Donor-Advised Funds: How Grants Flow During Recessions

H. Daniel Heist (University of Pennsylvania, School of Social Policy and Practice) and Danielle Vance-McMullen (University of Memphis, Public and Nonprofit Administration) have authored a research paper entitled "Understanding Donor-Advised Funds:  How Grants Flow During Recession."  Here is a short abstract:

Donor-advised funds (DAFs) are becoming increasingly popular. DAFs receive a growing share of all charitable donations and control a sizable proportion of grants made to other
nonprofits. The growth of DAFs has generated controversy over their function as intermediary philanthropic vehicles. Using a panel data set of 996 DAF organizations from 2007 to 2016, this article provides an empirical analysis of DAF activity. We conduct longitudinal analyses of key DAF metrics, such as grants and payout rates. We find that a few large organizations heavily skew the aggregated data for a rather heterogeneous group of nonprofits. These panel data are then analyzed with macroeconomic indicators to analyze changes in DAF metrics during economic recessions. We find that, in general, DAF grantmaking is relatively resilient to recessions. We also find payout rates increased during times of recession, as did a new variable we call the flow rate.

 

Nicholas Mirkay

 

March 12, 2019 in Publications – Articles | Permalink | Comments (0)

Friday, February 8, 2019

Hemel on The State-Charity Disparity Under the 2017 Tax Law

Hemel_danielDavid Hemel (Chicago) has posted The State-Charity Disparity Under the 2017 Tax Law, Washington University Journal of Law and Policy (forthcoming). Here is the abstract:

Since December 2017, several states have enacted laws granting state tax credits for charitable contributions that go toward public education or public health. One purpose of these laws is to allow individuals to claim federal charitable contribution deductions for payments that simultaneously serve to reduce those individuals’ state tax liabilities and to support programs that state governments would otherwise fund. The strategy adopted by these states — if effective — would mitigate the impact of the $10,000 cap on individual state and local tax deductions imposed by the December 2017 tax law. The U.S. Treasury Department and the Internal Revenue Service (“IRS”) have proposed, but not yet finalized, regulations aimed at shutting down that strategy.

The ongoing debate regarding state charitable credit programs and the proposed Treasury regulations raise a number of interesting legal questions — some of which may be addressed at subsequent stages of the rulemaking process, others of which will likely be resolved by litigation. Rather than trying to answer any of those questions, this Essay — an edited transcript of remarks at the Washington University Journal of Law & Policy-Missouri Department of Revenue 2018 Symposium on State & Local Taxation — focuses instead on a separate, though related, question, a question that is implicated by the charitable credit debate but that will linger long after any litigation is resolved. That is: Why should federal tax law allow more favorable treatment to charitable contributions than to state and local tax payments? What are the essential differences between non-governmental charities and sub-national governments, or between contributions and tax payments, that justify this lack of parity?

Ultimately, this Essay concludes that there is little justification for allowing a virtually unlimited charitable contribution deduction while capping the deduction for SALT. That conclusion gives rise to a critique of the December 2017 tax law, but also to a critique of presidential candidate Hillary Clinton’s tax plan, which would have capped the rate at which state and local tax payments could be deducted without applying the same cap to charitable contributions. The Essay ends with reflections on the long-term implications of the state charitable credit programs for tax policy and politics.

Hat tip: TaxProf Blog

Lloyd Mayer

February 8, 2019 in Publications – Articles | Permalink | Comments (0)