Tuesday, October 1, 2019

Aprill: A Tax Lesson for Election Law

Ellen P. Aprill (Loyola LA) published A Tax Lesson for Election Law in the September 30th edition of Tax Notes.  The following are the introductory paragraphs of the article:

Aprill_Ellen_20171120_1_webs-2017-97076

An August 22 deadlock by the Federal Election Commission regarding a request for an advisory opinion highlights the complicated role that tax law plays in regulating campaign finance. It underscores important differences between section 501(c)(3) and (c)(4) organizations not only under section 501(c), but also under section 527. Moreover, because the resignation of the FEC vice chair has left the commission without quorum and thus unable to act, tax regulation of campaign finance has increased importance.

On May 31 the Price for Congress committee (the Price committee) filed a request with the FEC for an advisory opinion regarding transfer of remaining campaign funds from former legislator Price’s campaign committee. The committee asked for approval to transfer some, although not all, of its remaining almost $1.8 million to a section 501(c)(4) social welfare organization (the 501(c)(4)). The request prompted passionate debate and deep division but no resolution by the FEC commissioners when it was discussed on July 25 and again on August 22.

As proposed, the 501(c)(4) would “engage in research, education, presentation, and publications with respect to health, budget, and other public policy matters.” Although unlike section 501(c)(3) organizations, a 501(c)(4) is permitted to lobby without limit and to engage in considerable campaign intervention, the request stated that this 501(c)(4) “will not attempt to influence legislation nor participate or intervene in any political campaign.” The Price committee also proposed that any transferred funds be placed in a separate account and not be commingled with other assets of the 501(c)(4). To comply with applicable election law regarding private use by former candidates, neither the transferred funds in this special account nor income generated from these funds would be used to provide Price, any members of his family, or former employees of the Price committee or of Price’s government offices with compensation, gifts, or material reimbursement, or “to influence any election.” Price, however, would serve as the organization’s president and chief executive officer, albeit without any compensation. The Price committee anticipates that he would “speak, write, publish, or otherwise make appearance to present the work” of the 501(c)(4).

Under election law, campaign funds can be contributed “to an organization described in section 170(c) of the Internal Revenue Code” as well as “for any other lawful purposes.” Under tax law, a 501(c)(4) would not be described in section 170(c) because that provision describes organizations that are eligible to receive tax-deductible charitable contributions, and a 501(c)(4), unlike a 501(c)(3), is not such an organization. 

In responding to the Price committee request, however, FEC draft advisory opinion 19-33-A, issued on July 17, did not read the reference to section 170(c) as limiting transfers to organizations eligible to receive deductible charitable contributions. The draft opinion explains that if an organization engages in educational activity and constrains itself from lobbying and campaign intervention, it is described in section 170(c) for purposes of campaign finance law, even if it is not eligible to receive tax-deductible contributions.

At the July 25 FEC meeting, Chair Ellen L. Weintraub objected strongly: “If we were to approve this advisory opinion, it would extend the ‘personal use’ exemption to 501(c)(4) organizations in a way that the commission has not done before.” Republican members disagreed, and the FEC postponed its decision. . . . 

At its meeting on August 22, however, the FEC “was unable to render an opinion by the required four affirmative votes and concluded its consideration of the request.” The Price committee will now have to decide whether to proceed without an FEC advisory opinion. The commission’s lack of sufficient commissioners for a quorum, however, prevents any possible enforcement action. 

Whatever the Price committee decides, its choice of a 501(c)(4) rather than a 501(c)(3) raises several issues under applicable tax law and its interaction with election law. In short, transfers to a 501(c)(4) rather than a 501(c)(3) offer advantages regarding IRS transaction costs and oversight, but also involve some income tax risks to the former candidate. The Price committee request also reminds us of some of the inadequacies of our regulation of campaign financing, both through tax law and election law. . . .

Nicholas Mirkay

October 1, 2019 in Federal – Executive, In the News, Publications – Articles | Permalink | Comments (0)

Friday, September 27, 2019

Afik, Benninga & Katz on Grantmaking Foundations' Asset Management, Payout Rates and Longevity Under Changing Market Conditions

Zvika Afik (Ben-Gurion University), Simon Benninga, and Hagai Katz (Ben-Gurion University) have published Grantmaking Foundations' Asset Management, Payout Rates, and Longevity Under Changing Market Conditions: Results From a Monte Carlo Simulation Study in the Nonprofit and Voluntary Sector Quarterly. Here is the abstract:

Today’s uncertain financial markets could affect foundations’ future grantmaking capacities. We review foundations’ financial decision-making patterns and their effect on foundations’ assets, longevity goals, and payouts. Using three fictional foundations with different longevity goals and grantmaking preferences, we demonstrate the delicate balance and tight nexus between asset management strategies, payout rates, and longevity. To do so, we perform stochastic Monte Carlo simulations of multiple foundation life cycles, conducted under diverse capital market scenarios. The findings suggest that foundations should (a) readjust their return expectations to today’s less favorable markets; (b) reduce their reliance on past portfolios’ investment returns or unique “success stories” in making decisions; (c) appreciate the strong interdependence between portfolio-mix, payout rates, and longevity; (d) consider effects of their particular mission/problem area on these parameters; and (e) use tailored projection analyses that simulate various investment strategies, payouts rates, and longevity to meet their grantmaking goals.

Lloyd Mayer

September 27, 2019 in International, Publications – Articles | Permalink | Comments (0)

Cordery & Sim on Distinguishing Between Mutual-Benefit and Public-Benefit Entities

Carolyn Cordery (Aston University Business School) (pictured) Corderyand Dalice Sim (University of Otago) have published Regulatory Reform: Distinguishing Between Mutual-Benefit and Public-Benefit Entities in the Journal of Public Budgeting, Accounting & Financial Management. Here is the abstract:

Purpose

The purpose of this paper is to analyse nonprofit regulation through comparing and contrasting mutual-benefit and public-benefit entities. It ascertains how these entities differ in size, publicness, tax benefits and whether these differences might suggest regulatory costs should be differentiated.

Design/methodology/approach

This mixed-methods study utilises financial data, submissions and interviews.

Findings

There are stark differences in these two types of regulated nonprofit entities. Members should be the primary monitoring agency/ies for mutual-benefit entities, but financial reports should be understandable to these members. Nevertheless, the availability of tax concessions, combined with the benefits of limited liability, suggest mutual-benefit entities should be regulated and monitored by government in a way sympathetic to their size.

Research limitations/implications

As with most research, a limitation is this study’s focus on a single jurisdiction.

Practical implications

The differences in these entities’ characteristics are important for designing regulation.

Social implications

Better regulation is likely to require a standard set of financial reporting standards. Government has the right to demand disclosures due to benefits mutual-benefit entities enjoy.

Originality/value

In comparison to studies utilising only public-benefit data, this study uses unique data sets to compare public-benefit and mutual-benefit entities and presents nonprofit sector participant’s perceptions of these differences in context. This enables analysis of how better regulation could be achieved.

Lloyd Mayer

September 27, 2019 in International, Publications – Articles | Permalink | Comments (0)

DeYoung et al. on Who Consumes the Credit Union Tax Subsidy?

Credit UnionRobert DeYoung (Kansas School of Business), John Goddard (Bangor Business School), Donal G. McKillop (Queen's University Management School), and John O.S. Wilson (University of St. Andrews) have posted Who Consumes the Credit Union Tax Subsidy? on SSRN. Here is the abstract:

Credit unions are exempt from paying income taxes, and these tax savings are supposed to subsidize the provision of financial services to credit union members. In this paper, we investigate whether the entire credit union tax subsidy is being passed along to credit union members — in the form of increased quantities of financial services and/or better-than-market interest rates — or whether some of the credit union tax subsidy is being consumed by inefficient credit union operations. We estimate a structural model of profit inefficiency for US commercial banks between 2005 through 2017, and use the estimated parameters to evaluate the relative performance of US credit unions and commercial banks. When inputs and outputs are valued in terms of market prices, profit inefficiencies at credit unions exceed those at similar commercial banks by an economically significant order. About half of this inefficiency gap can be attributed to legally mandated credit union activities — such as producing loans and issuing deposits — while the remainder can be attributed to operational inefficiencies at credit unions relative to banks. When inputs and outputs are valued in terms of the prices that credit unions actually pay, our results suggest that over nine-tenths of the tax subsidy is simply passed through to credit union members in the form of higher deposit interest rates.

Lloyd Mayer

September 27, 2019 in Publications – Articles | Permalink | Comments (0)

Park & Peng on Nonprofits' Revenue Streams and Provision of Collective Goods

Park-2018 Peng-headshotYoung Joo Park and Shuyang Peng (both at the University of New Mexico School of Public Administration) have published Advancing Public Health Through Tax-Exempt Hospitals: Nonprofits' Revenue Streams and Provision of Public Goods in the Nonprofit and Voluntary Sector Quarterly. Here is the abstract:

Nonprofit organizations play an essential role in the provision of collective goods. Focusing on a unique subsector in the United States, this study examines the extent to which nonprofit hospitals’ provision of community benefits is related to their revenue streams. Building on existing theories, we postulate that as the proportion of a certain revenue source (i.e., government grants, private contributions, and program fees) increases, its corresponding benefits also increase. Using data from the Internal Revenue Service (IRS) 990 filed by tax-exempt hospitals nationwide, we performed panel data analysis with year and id fixed effects using robust standard errors. The findings show that the proportion of private donations is positively associated with community benefits, whereas that of program income is negatively related to community benefits. Overall, nonprofits’ decision to serve disadvantaged groups and larger communities is associated with their income sources. The study raises implications that are pertinent to nonprofit management, public administration, and health administration.

Lloyd Mayer

September 27, 2019 in Publications – Articles | Permalink | Comments (0)

Sidel on The Drive to Securitize Foreign Nonprofit and Foundation Management in China

Sidel-110311-2-tj-09Mark Sidel (Wisconsin) has published Managing the Foreign: The Drive to Securitize Foreign Nonprofit and Foundation Management in China in the August issue of Voluntas. Here is the abstract:

In recent years, China has sought to tighten regulation of foreign nonprofit organizations and foundations operating or funding in China, including through a new Law on the Management of the Domestic Activities of Foreign Non-governmental Organizations in China, enacted in April 2016. This article analyzes the history of China’s regulation of foreign nonprofits and foundations, the effect of external and domestic events on China’s shifting policy climate, the emergence of security-based intellectuals and their role in policy on foreign nonprofits and foundations in China, the new policy framework and the new Overseas NGO Law enacted in 2016, and initial implementation of this new framework in China. These developments provide background to other aspects of nonprofit and philanthropic performance in China that are discussed in this special issue.

Lloyd Mayer

September 27, 2019 in International, Publications – Articles | Permalink | Comments (0)

Thursday, September 19, 2019

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

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

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

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

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

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

[See also TaxProf Blog]

Nicholas Mirkay 

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

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

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

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

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

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

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

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

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

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

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

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

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

 

Nicholas Mirkay

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

Finley: Reforming the Charitable Contribution Tax Deduction

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

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

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

[Hat tip:  TaxProf Blog]

Nicholas Mirkay

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

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)