Nonprofit Law Prof Blog

New Article: Does Mandatory Disclosure Matter? The Case of Nonprofit Fundraising

Interesting new article by Putnam Barber, Meghan Farwell, and Brian Galle entitled Does Mandatory Disclosure Matter? The Case of Nonprofit Fundraising:

The abstract: "Do donors seek out potentially adverse information about organizations making fundraising appeals? Do they react when it is readily available? Do they draw negative inferences when critical information is not available? To answer these questions, we consider previously unexamined large-scale natural experiments involving U.S. charitable organizations—tax-exempt organizations that file Internal Revenue Service (IRS) Form 990. Using standard difference-in-differences designs, we find that donors penalize organizations with high fundraising costs when there is mandatory disclosure or involuntary disclosure by a third-party reporter. Organizations with lower fundraising costs fundraise more successfully in the presence of these disclosures. The contrast with donors’ behavior when such information is not available suggests that donors do not draw correct inferences when potentially consequential information is not disclosed. Disclose-on-request requirements, in contrast, apparently do not have any significant impact on donors’ or organizations’ behavior. We then sketch implications for the regulation of donations to charities and their modern cousins, such as crowdfunding and social enterprise organizations."

Philip Hackney

Article: The Advocacy Universe: A Methodology to Identify Politically Active 501(C)(4) Organizations

Interesting new article by authors Margaret A. Post, Elizabeth T. Boris, and Carol L. Stimmel describing a methodology for researching dark money entitled: The Advocacy Universe: A Methodology to Identify Politically Active 501(c)(4) Organizations.

The abstract states: "This article provides a framework that defines politically active 501(c)(4)s organizations and describes a methodology for identifying them among more than 80,000 social welfare organizations. We estimate that approximately 15% of (c)(4)s likely pursue advocacy or political action, while most are engaged in unrelated activities. Understanding the distinctive features of the social welfare sector and the politically engaged organizations within it are essential tasks for nonprofit scholars, yet the methodological and empirical challenges are complex and significant. To date, there has been no systematic study of the nature and efficacy of these organizations. We create a multistage methodology that allows researchers to identify politically active (c)(4)s and to investigate subgroups focused on different policy issues and with different member groups. This article summarizes how we identify organizations and strategies needed to reveal whether an organization is engaged in political activities. We explain the approach we took and the challenges we encountered."

Philip Hackney

New Article: Who’s Afraid of Bob Jones?: 'Fundamental National Public Policy' and Critical Race Theory in a Delicate Democracy

Professor Lynn Lu has a new interesting article forthcoming in CUNY L. Rev.  looking at the broader impact of Bob Jones all these years later entitled Who's Afraid of Bob Jones?: 'Fundamental National Policy' and Critical Race theory in a Delicate Democracy. Here is the abstract:

In Summer of 2021, Republican legislators across the United States introduced a host of bills to prohibit government funding for schools or agencies that teach critical race theory (“CRT”), described by the American Association of Law Schools not as a single doctrine but a set of “frameworks” to “explain and illustrate how structural racism produces racial inequity within our social, economic, political, legal, and educational systems[,] even absent individual racist intent.” Characterizing such an explicitly race-conscious analysis of legal and social institutions as “divisive,” opponents of CRT, such as former Vice President Mike Pence, labeled it “nothing short of state-sponsored and state-sanctioned racism.”

The political campaign to “Stop CRT,” as articulated by strategist Christopher Rufo, seeks to redirect the time-honored civil-rights strategy of defunding racially discriminatory social institutions for use against race-conscious efforts to remedy the ongoing disparate racial, economic, and other social effects perpetuated by the same institutions. The movement to Stop CRT thus seeks to freeze civil rights progress where it stood decades ago, as when the Supreme Court acknowledged a “fundamental national public policy” against racial segregation in its 1983 decision in the notorious case of Bob Jones University v. United States, while leaving unresolved vital questions about whether and how to allocate public resources affirmatively to foster diversity, equity, inclusion, and accessibility in democratic society.

In Bob Jones, the Court upheld the federal taxation of private schools that excluded Black students because their religious beliefs allegedly mandated “racial separation.” Specifically, the Court ruled that the Internal Revenue Service (IRS) properly withheld federal tax-exempt status to otherwise qualifying entities to enforce “fundamental national public policy” (“FNPP”), as expressed by all three branches of the federal government, against racial segregation in schools, and deemed desegregation a compelling government interest that outweighed any burden on religion. As a private tax dispute, Bob Jones stands alongside legions of other complaints brought by taxpayers aggrieved by IRS actions. But as a case involving an educational institution raising a religious liberty claim against antidiscrimination regulation, Bob Jones raised broader public law issues involving constitutional and federal statutory interpretation, as well as judicial review of administrative action.

This article assesses the legal and symbolic influence of Bob Jones not to relitigate the case or to rewrite history, but to highlight the case’s lasting symbolic impact and lessons for future civil rights advocacy, especially as informed by CRTs that developed alongside the federal courts’ retreat from enforcing existing antidiscrimination norms. Part I examines the case of Bob Jones to show how its political and legal context shaped its unique posture and path to the Supreme Court. Part II examines the afterlife of Bob Jones and its symbolic importance to conservatives motivated to prevent its expansion, even as the decision limits its own impact by leaving crucial substantive questions unresolved: namely, the role of pluralism in enforcing civil rights against First Amendment claims, the viability of race-conscious remedies for racial discrimination, and the visibility of redistributive economic justice concerns. Finally, Part III shows how CRT’s insistence on confronting those same questions reveals persistent inequities sustained by U.S. social and legal institutions, drawing the fire of efforts to Stop CRT. Part III assesses the prospects for moving the difficult questions left unresolved in Bob Jones back to the center of analysis, even with the current Supreme Court in a polarized and partisan political climate. The Article ultimately concludes that the legal reorientation demanded by Bob Jones and initiated by critical theorists, whatever their fate in the Court’s jurisprudence in the near term, remains crucial for identifying and challenging ongoing power disparities in and through every level of democratic government and society.

Philip Hackney

Arya, Mittendorf & Ramanan, A Model of Equity Pricing in Light of Insider Stock Donations

Anil Arya (Ohio State), Brian Mittendorf (Ohio State) and Ram Ramanan (SUNY at Binghamton) have posted A Model of Equity Pricing in Light of Insider Stock Donations to SSRN. Its abstract follows:

Corporate insiders face substantial restrictions on stock sales, but many have viewed receiving tax deductions from charitable donations of stock holdings as an alternative way to benefit. In fact, empirical evidence consistently indicates that executives make use of their private information in determining the size and timing of their charitable giving. This paper develops a parsimonious model of informed stock trading that accounts for the practical consideration that disposal of stock by insiders often takes the form of charitable donations rather than direct trading. We demonstrate that equilibrium charitable gifts by insiders reflect their private information about firm value and do so in a manner that facilitates price discovery even more efficiently than routine informed trading does. Given the heightened sensitivity of stock donations to firm value, the results provide implications of such donations for market properties, market participants, and charity proceeds, as well as identify how these effects vary with prevailing tax policy.

Samuel D. Brunson

Flynn on Restoring the Conservation Purpose in Conservation Easements

Andrew Flynn (Ropes & Gray law firm) has published Restoring the Conservation Purpose in Conservation Easements: Ensuring Effective and Equitable Land Protection Through Internal Revenue Code Section 170(h) in the Stanford Environmental Law Journal. Here is the abstract:

Conservation easements are legal restrictions limiting development and are intended to preserve natural lands, historical areas, and open space. And for more than 50 years, Congress has permitted taxpayers to claim an income tax deduction when they make a charitable donation of an easement. These easements are now the primary form of environmental preservation in the United States.

But the current Internal Revenue Code provision authorizing this deduction invites donations with questionable preservation value to the public and high-profile instances of abuse. It also disproportionately favors the wealthy. Notably, most donations are not required to provide public benefit. Reform proposals and law journal articles discuss the challenges of valuing easements, but there is little discussion of how to ensure the deduction properly incentivizes quality conservation work.

This article fills that void. It examines the current law and discusses how Congress can ensure the deduction is available only to easement donations which further cohesive environmental protection goals. It proposes requiring all easement donations to provide a public benefit and to be in accordance with conservation and strategic goals developed by local governments and non-governmental organizations. It also proposes specific policy reforms, drawn from other sections of the Code, to achieve this goal.

Lloyd Mayer

Sholk: Updated Guide to Election Year Activities of Section 501(c)(3) Organizations

Steven H. Sholk (Gibbons law firm) has posted the annual update for his comprehensive and detailed 589-page Guide to Election Year Activities of Section 501(c)(3) Organizations. According to the Table of Contents, it includes:

• statutory provisions on contributions, expenditures, and electioneering
• statutory and regulatory provisions on contributions to and fundraising for section 501(c)(3) organizations
• regulatory provisions on contributions, expenditures, and electioneering
• voter registration and get-out-the-vote drives
• voter guides
• candidate appearances and advertisements
• candidate debates
• candidate use of facilities and other assets
• website activities
• campaign activities of section 501(c)(3) organizations' directors, offices, and employees
• consequences of violations

Lloyd Mayer

This Sunday: AALS Presentations on Nonprofits, Inequality, and Black Poverty

For people attending the virtual American Association of Law Schools (AALS) Annual Meeting this week, there are two nonprofit-related presentations of which I am aware that may be of interest.

On Sunday at 11:00 a.m. (Eastern), the Nonprofit and Philanthropy Law section will present A Subsidy for Inequality: Bob Jones and Fundamental Public Policy Today. The presenters are Provost JoAnne A. Epps (Temple), along with two of our blog contributors, Samual D. Brunson (Loyola-Chicago) and yours truly; the moderator is Khrista McCarden (Tulane), who is also a blog contributor.

And on Sunday at 4:45 p.m. (Eastern), the Tax Section will present New Voices in Taxation, including The Black Tax: How the Charitable Contribution Subsidy Reinforces Black Poverty by Nyamagaga R. Gondwe (NYU) (forthcoming in the Tax Law Review). Here is the abstract:

This paper analyzes tax-based welfare policy through the lens of Black economic history. It juxtaposes the tax treatment of Black Kinship Networks and the charitable contributions deduction in the federal tax code to show how the tax incentive for charity creates an economic burden for the Black community. The paper argues that when the tax code creates incentives to attract private capital to welfare projects without making antipoverty welfare a condition of the tax benefit, it shifts the burden and cost of providing welfare services back to communities in need. In the Black community, wealth and income disparities make the lack of public welfare accommodations an even greater burden. Still, Black Kinship Networks facilitate the survival of in-group members, as they have for generations, in an effort to counteract the effect of declining public welfare and ineffectual private welfare.

Lloyd Mayer

Colinvaux: Speeding Up Benefits to Charity: Donor Advised Fund and Foundation Reform

Roger Colinvaux, Professor at Catholic University of America, Columbus School of Law, posted a new article on donor advised funds entitled Speeding Up Benefits to Charity: Donor Advised Fund and Foundation Reform.

 Here is the abstract:

"Charitable giving incentives are failing to achieve their purposes. Currently $1.26 trillion has accumulated in donor advised funds (DAFs) and private foundations, a massive accumulation of wealth under the effective control of the wealthiest in society. Gifts to these charitable intermediaries inherently frustrate the purpose of the charitable giving incentives. Until the funds are released from the intermediary, no working charity is able to benefit from the donation. Congress recognized this delay in benefit problem with respect to private foundations in landmark legislation in 1969, but has never addressed the problem for DAFs, and the rules for foundations are now too easy to avoid. Recent bi-partisan legislation introduced in Congress would address these issues. The Accelerating Charitable Efforts (ACE) Act would impose a time limit on advisory privileges for DAF contributions and close loopholes in the private foundation payout rules, among other reforms. While the ACE Act has many supporters, there is organized opposition in favor of the status quo. The article explains the case for change and addresses the various arguments made against reform, including that current payout levels are sufficient, that reform would harm charitable giving and introduce costly new burdens on charities, that the timing of grants within a DAF does not matter and so should not be regulated, and that to limit advisory privileges is to target DAFs and to attack philanthropic freedom. Finding none of these arguments persuasive, the article also considers whether there should be an exception to reform for community foundation and other mission-driven DAF sponsors, and whether an alternative would be to impose a five percent payout rule on DAF accounts. The article concludes that reform of charitable intermediaries is essential for the legitimacy of the charitable giving incentives and to counter growing charitable wealth accumulations. The ACE Act however should be strengthened to apply to existing DAF accounts and to study the effectiveness of incentives to improve private foundation payout and the extent to which DAFs at mission-driven sponsors further their mission."

Philip Hackney

Qu & Daniel, Tangible information and charitable giving: When do nonprofit overhead costs matter?

Heng Qu (Texas A&M) and Jamie Levine Daniel (Indiana University Purdue University at Indianapolis) have published Tangible Information and Charitable Giving: When Do Nonprofit Overhead Costs Matter? in the Journal of Behavioral Public Administration. Here is the abstract:

Nonprofit organizations in the U.S. have been under the pressure to demonstrate their “worthiness” by minimizing overhead costs. Prior experiment studies find that donors respond negatively to high overhead costs when overhead information is highlighted. In reality, donors receive all sorts of information about nonprofit organizations from various channels. While high overhead has been found to reduce donors’ perceived impact and donations, providing other types of tangible information can increase charitable giving by enhancing donors’ perceived impact. When other types of information are available, to what degree overhead aversion still exists? We use two online survey experiments to examine how information on overhead costs and donation use affect giving decisions in a single-organization and two-organization evaluation setting. We found that only a small proportion of people demonstrated overhead aversion when presented with a single organization. There was stronger evidence of overhead aversion when participants were asked to compare and choose between two organizations. Nonetheless, providing tangible information about what donations can buy mitigated overhead aversion in both settings. This study contributes to the growing experimental research on the relationship between overhead ratios and charitable giving, and provides practical insights for nonprofits hoping to ameliorate overhead aversion and increase donation support.

Samuel D.  Brunson

Mayo, Navigating the Notches: Charity Responses to Ratings

Jennifer Mayo (Ph.D. Candidate in Economics, University of Michigan) has posted Navigating the Notches: Charity Responses to Ratings. She summarizes her research in a Twitter thread here. Here is her introduction:

This paper studies both donor and nonprofit responses to the star rating system designed by Charity Navigator. Using IRS Form 990 data from 2002 to 2019, I find that an increase in a charity’s rating from 3- to the highest 4-star rating is associated with a 6% rise in contributions, with larger effects among smaller charities. Some charities respond to the incentives by changing their behavior to try to get themselves above the star thresholds, leading to “bunching” at the thresholds. This response is equal to the effect of charities halving spending on administration. I find that some of the response is due to misreporting of expenses in order to achieve a higher star rating. The analysis suggests that a notched rating system induces greater behavioral change than a continuous measure, but affects a smaller number of charities. Which rating system is preferred depends on the relative value placed on these effects.

Samuel D. Brunson

Burnet, Leshy & McLaughlin: Building Better Conservation Easements

King Burnett (Uniform Law Commission), John D. Leshy (Hastings), and Nancy A. McLaughlin (Utah) have published Building Better Conservation Easements for American the Beautiful at the Harvard Environmental Law Review online. Here is the introduction:

In January 2021, the Biden Administration endorsed the goal of protecting 30 percent of the nation’s lands and waters by 2030 to conserve biodiversity and help curb greenhouse gas emissions. The Administration’s initial report on this “America the Beautiful” initiative, issued in May, indicates that federally-deductible conservation easements are likely to play an important role in its implementation. This essay addresses whether and how such easements should be counted in this process.

This matter is of great importance. Donations of conservation easements, by which landowners receive generous federal tax deductions if they restrict the use of their properties in perpetuity in the interest of conservation, cost American taxpayers billions of dollars annually in foregone revenue. In addition, growing reports of abuse and other developments raise serious questions about the effectiveness of deductible easements in achieving durable conservation outcomes.

This essay outlines the fundamental problems plaguing the deductible conservation easement program. It compares practices regarding deductible conservation easements with the protocols employed in various government conservation easement purchase programs. It concludes with specific suggestions for making deductible easements an effective tool for achieving the America the Beautiful goal. Simply accelerating the pace of conservation easement donations is not enough—“to achiev[e] durable outcomes that meaningfully improve the lives of Americans,” better conservation easements need to be built.

Lloyd Mayer

California Enacts First State Charitable Crowdfunding Laws

California has enacted what I believe is the first U.S. law specifically relating to crowdfunding for the benefit of charities. The legislation is A.B. 488, which the Governor signed on October 7, 2021 and that will be effective on January 1, 2023. I have been tracking developments in this area for an article that is currently in the editing process at the Indiana Law Journal.

Here is a summary of its key provisions from the Legislative Counsel's Digest:

This bill, beginning January 1, 2023, would establish that charitable fundraising platforms and platform charities are trustees for charitable purposes subject to the Attorney General’s supervision. The bill would define “charitable fundraising platform” to mean certain legal entities that use the internet to provide a website, service, or other platform to persons in this state, and perform, permit, or otherwise enable certain acts of solicitation to occur. A “platform charity” would be defined to mean a trustee or charitable corporation as defined under the act that facilitates described acts of solicitation on a charitable fundraising platform.

 

The bill would require a charitable fundraising platform, before soliciting, permitting, or otherwise enabling solicitations, to register with the Attorney General’s Registry of Charitable Trusts, under oath, on a form provided by the Attorney General. The bill would require persons or entities that meet the definition of a charitable fundraising platform and platform charity to register as a charitable fundraising platform. The bill would require annual renewal of registration. The bill would require the Attorney General to impose registration and renewal fees and deposit revenues in the Registry of Charitable Trusts Fund, for use as specified.

 

The bill would require a charitable fundraising platform to file annual reports, under oath, with the registry on a form provided by the Attorney General. The bill would restrict a charitable fundraising platform or platform charity to soliciting, permitting, or otherwise enabling solicitations, or receiving, controlling, or distributing funds from donations for recipient or other charitable organizations in good standing, as defined. The bill would require a charitable fundraising platform or platform charity that performs, permits, or otherwise enables specific acts of solicitation, before a person can complete a donation or select or change a recipient charitable organization, to provide prescribed conspicuous disclosures that prevent a likelihood of deception, confusion, or misunderstanding.

 

The bill would require a charitable fundraising platform or platform charity that solicits, permits, or otherwise enables solicitations to obtain the written consent of a recipient charitable organization before using its name in a solicitation, as prescribed. Written consent would not be required for certain acts of solicitation if specific requirements are met. The bill would require a charitable fundraising platform or platform charity, after donors contribute donations based on certain solicitations, to promptly provide a tax donation receipt in accordance with specified provisions. The bill would prohibit a charitable fundraising platform or platform charity from diverting or otherwise misusing the donations received through solicitation on the charitable fundraising platform, and require the entity to hold them in a separate account and to ensure donations and grants of recommended donations are sent promptly to recipient charitable organizations with an accounting of any fees imposed for processing the funds and in accordance with rules and regulations.

Law Firm Summaries: For Purpose Law Group; Perlman & Perlman; Greenberg Traurig (addressing effects on cause-related marketing).

Lloyd Mayer

New Paper: Information Acquisition, Inventory Levels, and Tax Incentives for Charitable Giving

A new paper entitled Information Acquisition, Inventory Levels, and Tax Incentives for Charitable Giving by Anil Arya, Tyler Atanasov, Brian Mittendorf, and Dae Hee Yoon looks at benefits enhanced inventory charitable giving incentives provides to firms. Bottom line: enhanced deductions for donating inventory ensure corporate giving is about much more than publicity and can help facilitate more economic efficiency, for consumers & charities alike.

The Abstract reads as follows: "Many of America’s top corporate donors share a common feature: the bulk of their giving is in the form of in-kind products, not cash. This phenomenon is not a coincidence but rather a result of the tax code creating such a preference due to an “enhanced” deduction for inventory donations. In this paper, we utilize a parsimonious model of inventory choice under uncertainty to demonstrate that enhanced tax deductions not only promote giving, they also promote better learning of consumer demand for products in the retail market. An inventory stockout curtails a firm’s learning of precise consumer demand since the firm’s sales volume only reveals that the underlying consumer demand exceeded the inventory level. Tax incentives for donations of excess inventory encourage a firm to boost its inventory stocks which, in turn, boosts the firm’s learning of consumer preferences. Accounting for this informational role of tax incentives, the paper derives charitable giving patterns, socially-beneficial tax policy, and firms’ information acquisition choices."

Philip Hackney

Adediran: Disclosures for Equity

Atinuke O. Adediran (Fordham) has posted Disclosures for Equity on SSRN (122 Columbia Law Review forthcoming 2022): Here is the abstract:

While one might expect that the nonprofit sector is an equitable space where generosity and social justice are the norms, the sector suffers from funding inequalities. Despite corporations’ and private foundations’ pledges to fund nonprofit organizations that are led by members of, or that serve, communities of color, there are racial disparities in nonprofit funding. Research reveals that in comparison to White-led nonprofit organizations, organizations led by or serving communities of color are chronically underfunded. These disparities in funding mean that organizations that serve communities of color are more likely to go defunct or lack resources. Increased funding for minority-led or serving organizations can have a profound positive impact on the criminal justice system, healthcare, environmental justice, housing, labor, and employment. Indeed, it would be difficult to fight mass incarceration without the work of nonprofit charities like Bryan Stevenson’s preeminent organization, Equal Justice Initiative.

This Article proposes two novel remedies to address this issue. The first is for charities to publicly disclose their institutional donors in Schedule B of Internal Revenue Service (“IRS”) Form 990. The second is for IRS Form 990 to include information on the race and ethnicity of top managers, directors, and the communities an organization serves. Mandating these disclosures would allow the public to assess whether pledges to support racial justice come with funding rather than empty promises. While the Supreme Court’s recent case, Americans for Prosperity Foundation v. Bonta (“AFPF”) struck down California’s donor disclosure requirements, this Article makes an important distinction between individual and institutional donors that the AFPF case ignores. As the disclosures would only apply to institutional donors and would include an opt out provision for controversial organizations, they would protect the right to freedom of association while promoting transparency in nonprofit funding and racial justice. By using mandatory disclosures to address racial inequities in not-for-profit law, the nonprofit sector might finally contend with persistent racial disparities in funding that leave communities of color underserved.

The article is particularly timely given a recent Washington Post analysis (Corporate America's $50 billion promise) that raises questions about corporate support for efforts to address racial inequality, noting that "more than 90 percent of that amount — $45.2 billion — is allocated as loans or investments they could stand to profit from, more than half in the form of mortgages" and that only about $70 million "went to organizations focused specifically on criminal justice reform."

Lloyd Mayer

Avci, Schipani, Seyhun & Verstein: Insider Giving

Sureyya Burcu Avci (Sabanci University), Cindy A. Schipani (University of Michigan), H. Nejat Seyhun (University of Michigan), and Andrew Verstein (UCLA) have posted Insider Giving on SSRN (71 Duke Law Journal forthcoming 2021). Here is hte abstract:

Corporate insiders can avoid losses if they dispose of their stock while in possession of material, non-public information. One means of disposal, selling the stock, is illegal and subject to prompt mandatory reporting. A second strategy is almost as effective and it faces lax reporting requirements and enforcement. That second method is to donate the stock to a charity and take a charitable tax deduction at the inflated stock price. “Insider giving” is a potent substitute for insider trading. We show that insider giving is far more widespread than previously believed. In particular, we show that it is not limited to officers and directors. Large investors appear to regularly receive material non-public information and use it to avoid losses. Using a vast dataset of essentially all transactions in public company stock since 1986, we find consistent and economically significant evidence that these shareholders’ impeccable timing likely reflects information leakage. We also document substantial evidence of backdating – investors falsifying the date of their gift to capture a larger tax break. We show why lax reporting and enforcement encourage insider giving, explain why insider giving represents a policy failure, and highlight the theoretical implications of these findings to broader corporate, securities, and tax debates.

Lloyd Mayer

Global Policy Special Issue: Restricting NGOs: From Pushback to Accommodation

Global Policy has published a special issue focusing on government restrictions on civil society groups. Here is the description and table of contents:

Since the mid-2000s, scholars, policy makers, and activists have been sounding alarm bells over the growing tendency of governments around the globe to restrict the ability of civil society groups to form, operate, advocate for particular causes, receive and use resources, and network with other actors. The contributions in this special issue examine how particular types of civil society organizations are impacted by this clampdown, how restrictions can change the balance between civil society actors with rival ideological perspectives, how restrictions can enable the rise of new civil society actors attacking existing CSOs, and how restrictions can shape popular attitudes and donor funds. Importantly, the contributions in this issue also shed light on how organizations attempt to push back against restrictive states.

Special Issue Article: Introduction

Restricting NGOs: From Pushback to Accommodation - Kendra Dupuy, Luc Fransen and Aseem Prakash

Special Issue Articles

Tempering Transnational Advocacy? The Effect of Repression and Regulatory Restriction on Transnational NGO Collaborations - Luc Fransen, Kendra Dupuy, Marja Hinfelaar, Sultan Mohammed and Zakaria Mazumder

The Selective Closure of Civic Space - Conny Roggeband and Andrea Krizsán

The Enemy Within? Anti-Rights Groups and Restrictions on Civil Society - Ines M. Pousadela and Dominic R. Perera

Who Cares about Crackdowns? Exploring the Role of Trust in Individual Philanthropy - Suparna Chaudhry, Marc Dotson and Andrew Heiss

The Implications of Closing Civic Space for Hunger and Poverty in the Global South - Naomi Hossain and Marjoke Oosterom

A Platform or Partner: Engaging the Media in Advocacy - Lisa-Marie Selvik

Defending Civic Space: Successful Resistance Against NGO Laws in Kenya and Kyrgyzstan - Nora Berger-Kern, Fabian Hetz, Rebecca Wagner and Jonas Wolff

Don’t Touch My Constitution! Civil Society Resistance to Democratic Backsliding in Africa´s Pluralist Regimes - Lise Rakner

Refraining or Resisting: Responses of Green Movement Supporters to Repression During the 2013 Iranian Presidential Elections - Ali Honari and Jasper Muis

Lloyd Mayer

Cryptocurrency and Nonprofits

Peter Howson (Northumbria University, UK) has published Crypto-giving and surveillance philanthropy: Exploring the trade-offs in blockchain innovation for nonprofits in Nonprofit Management and Leadership. Here is the abstract:

A blockchain is a smart electronic database, distributed to all users, immutably tracking every transaction that has ever taken place between nodes on a network. The technology is being used by some nonprofits to address various operational challenges, including attaching automated conditions to charitable donations facilitated by programmable “crypto-giving” platforms. Drawing from analysis of technical documents provided by active crypto-giving projects, this review considers how these platforms enable radical shifts in sectoral power relations through “surveillance philanthropy”. This algorithmic surveillance ensures project funding fully reflects the interests of donors, while potentially restricting nonprofits in meeting the dynamic and complex needs of project beneficiaries. The paper considers the benefit trade-offs from crypto-giving platforms in three areas of utilization: (a) new forms of donor engagement and fundraising, (b) new tools for organizational governance, and (c) novel provision of development assistance. Despite the possible efficiency and transparency benefits of crypto-giving platforms, more research and practitioner engagement is required to ensure the sector's funding is secure and sustainable, without entailing significant risks for proposed beneficiaries.

For additional coverage of cryptocurrency and nonprofit issues, see Philip Hackney & Brian Mittendorf, Charities are taking digital money — but there are risks (Salon), Crypto, Meet Donor-Advised Funds: a New Way of Giving (The Chronicle of Philanthropy), Nonprofits Get a New Type of Donation: Cryptocurrency (N.Y. Times).  

Lloyd Mayer

Huber, Pittavino & Peter, Tax Incentives for Charitable Giving: Evidence from the Canton of Geneva

Giedre Lideikyte Huber, Marta Pittavino, and Henry Peter (all from the University of Geneva) have posted Tax Incentives for Charitable Giving: Evidence from the Canton of Geneva on SSRN (to be published in the Routledge Handbook of Taxation and Philanthropy). Here is the abstract:

This contribution presents the legal framework of income tax incentives for charitable giving in Switzerland and describes the reform putting this system in place in 2006. Using a unique data set shared by the Tax Administration of the Canton of Geneva for this purpose, we provide descriptive statistics about taxpayers’ charitable giving behaviour in Geneva from 2001 to 2011. In this period, the number of taxpayers deducting charitable contributions significantly increased. In contrast, the size of individual annual deductions (both mean and median) decreases. The data show that the amount of tax deductions for charitable giving sharply increases relative to income class, and the median charitable deduction by taxpayer rises exponentially with income (i.e. years 2001 and 2011). Currently, no clear effects of the 2006 tax reform are visible; however, more in-depth studies are needed in this respect.

Lloyd Mayer

First Effects of the AFPF Donor Disclosure Decision and Additional Analysis

UPDATE: A reader commented that 1st Circuit has cited but distinguished the AFPF decision in rejecting a constitutional challenge to certain Rhode Island disclosure and disclaimer laws applicable to election-related communications, possibly setting the stage for the Supreme Court to consider the AFPF decision's applicable to campaign finance disclosure laws. See Gaspee Project v. Mederos (1st Circ. Sept., 14, 2021). In contrast, a federal district court in Colorado has relied in part on the AFPF decision in enjoining a municipal independent expenditures disclosure law. See Lakewood Citizens Watchdog Group v. City of Lakewood (D. Colo. Sept. 7, 2021).  And finally, the Hawaii Attorney General has posted the following notice on its Tax & Charities website: "Effective immediately, the State of Hawaii Department of the Attorney General’s Tax & Charities Division will no longer require the filing of Schedule B to the IRS Form 990 as part of the registration and annual reporting requirements."

 

The first effects of the Supreme Court's decision in Americans for Prosperity Foundation v. Bonta are now being felt, although it will take years for the full effects of this landmark donor disclosure case to be realized. 

Not surprisingly, California quickly posted the following notice on its Charities webpage in recognition of its loss:

Effective July 1, 2021, the Registry of Charitable Trusts will no longer require the filing of Schedule B to the IRS Form 990 as part of the registration and annual reporting requirements.

New Jersey, which has a filing requirement similar to California's, announced it would not be enforcing its requirement on its Charities Registration Section webpage, saying:

In light of the United States Supreme Court’s recent decision in Americans for Prosperity v. Bonta, the Division's Charities Registration Section has determined that the requirement that charities submit the Internal Revenue Service (IRS) Form 990 Schedule B upfront as part of their initial and yearly registrations can no longer be enforced. The Division will therefore be revising its rules, and in the interim will not be taking enforcement action based on the failure to include Schedule B or an equivalent donor schedule in such registrations. The Division will deem any entities that were previously deemed non-compliant solely because they failed to submit Schedule B or an equivalent donor schedule to be in compliance with registration requirements. All other regulations at N.J.A.C. 13:48-1.1 et seq. remain in effect and the Division continues to require the submission of all other schedules and statements.

And as already noted in this space, New York has also suspended collection of that schedule pending review of the decision. Both New York and New Jersey faced legal challenges from the Liberty Justice Center to their collection of the schedule, which may have pushed them to get these notices out quickly. No word yet on whether Hawaii, which is the other state with a similar requirement, will follow their lead. (Ballotpedia also identifies Kentucky as having such a requirement, but filings in the AFPF litigation indicate this is not accurate.) Coverage: The NonProfit Times.

For recent, in-depth analysis of the possible further effects of the decision, see Americans for Prosperity Foundation v. Bonta: Questions and Answers, written by Professor Bradley A. Smith (Capital University) for the Institute for Free Speech. One interesting aspect of his analysis is his take on the possible effect on the federal tax law donor disclosure requirement (operationalized through Schedule B) (footnotes omitted):

Does This Mean Nonprofits No Longer Have to File Schedule B With the IRS?

No. In 2020, the IRS repealed the requirement that donor names and addresses be reported on Schedule B for most nonprofits, but not for those operating under Sections 501(c)(3) or 527 of the Internal Revenue Code. The AFPF majority specifically noted that, “revenue collection efforts and conferral of tax-exempt status may raise issues not presented by California’s disclosure requirement.”

It is hard to say how the courts would respond to a challenge to the IRS’s Schedule B filing requirement. Such a challenge would now be analyzed under the AFPF framework, meaning the IRS would have to show an important need for the information and that the demand was narrowly tailored. However, as 501(c)(3) donors claim a tax deduction, the IRS would likely argue that the information is needed to ensure tax compliance – i.e., that the donations claimed by individual filers are actually received by charities. Given the potential revenue consequences, and a more direct connection between the information sought and the potential fraud than existed under California’s policy, courts might still uphold the rule, as the majority appears to suggest.

As often happens with Supreme Court decisions announcing new or clarified standards of review, how lower courts interpret the case going forward will be almost as important as the case itself.

Lloyd Mayer

More Recent Articles of Interest

A couple more recent papers of note in the nonprofit sphere:

Andrew Hayashi & Justin Hopkins

The Charitable Tax Deduction and Civic Engagement

In an era characterized by inequalities of income and influence, political polarization, and the segregation of social spaces, the income tax deduction for charitable contributions would appear to abet some of our worst social ills because it allows wealthy individuals to steer public funds to their preferred charities. But we argue that now is the time to expand and refocus—not abolish—the tax subsidy for charitable giving. Previous assessments of the charitable deduction have focused on how it helps charities but ignored an essential benefit of giving: its effect on the donor. We show that the charitable deduction increases volunteerism along with financial giving, and we report new evidence that volunteerism is associated with broader civic and political engagement, including engagement with people of different cultures, races, and ethnicities. Since people tend to undervalue the social and relational goods that flow from civic participation, the charitable deduction is a helpful corrective. We also report evidence that civic engagement is unequally distributed and propose a new refundable tax credit that turns low- and middleincome households from clients of charities to donors, which can both empower them and help remedy inequalities in civic and political participation.

Daniel Figueroa

Economic Opportunity & Resilience: Opportunity Zones & Equity

The Tax Cuts and Jobs Act provided the most comprehensive update to the tax code in two decades. Born of it was the federal opportunity zone legislation that facilitates economic development in historically distressed areas by offering tax incentives. But does this “catalyst of economic growth” provide the needed relief and opportunity to the communities which it’s aimed to serve? This piece is an analysis of opportunity zones—the good, the bad, and the yet to be defined and their effect on actually curbing (or accelerating) gentrification. By considering the TCJA in general, this work evaluates stipulations regarding “Opportunity Zones,” and the concept of geographically-targeted tax policy. First, an analogization of supply-side tax policy and place-based incentivization programs; following the analysis of supply-side economics and its influence on a rising inequality; and a two-fold assessment of the factors most germane to this analysis: a historical overview of the ideological, legislative, and social factors most pivotal to the passage of TCJA, reforms are shown to have culminated not only in sky-high levels of wealth and income inequality in the U.S., but also an increasing distance and isolation between the wealthy ‘investor class’ targeted by ‘Opportunity Zone’ legislation, and the economically-distressed communities which such tax-based legislative incentives were designed to bring relief. Notably, this work will consider the impact of such legislation upon poor areas, both in terms of the apparent impact it has had upon local development and with respect to the phenomenon known as gentrification. After examining the shortfalls of the legislation, this paper offers recommendations on a robust, comprehensive response toward equitable growth for the communities intended to be served.

Philip Hackney