Nonprofit Law Prof Blog

Hodge: Reining in America’s $3.3 Trillion Tax-Exempt Economy

Scott Hodge (Tax Foundation) has posted Reining in America’s $3.3 Trillion Tax-Exempt Economy. Here are the Key Findings:

• For over a century, lawmakers have exempted politically favored organizations and industries from the tax code. As a result, the tax-exempt nonprofit economy now comprises 15 percent of GDP, spans more than 1.8 million organizations, and manages over $8 trillion in assets. In 2019, it pocketed more than $238 billion in net income.

• The tax-exempt sector is overdue for review and reform. The U.S. needs a principled, rules-based approach to 1) distinguish between benevolent organizations and tax-exempt businesses, and 2) level the playing field between the business activities of nonprofit and for-profit entities.

• Many industries exempted from the income tax were designated as such in the Wilson-Gorman Tariff Act of 1894 and the Tax Act of 1909, but they reflect the social norms of the 19th century, not our 21st century economy.

• The majority of tax-exempt organizations today are business-like in form and function, including credit unions, hospitals, utilities, insurance companies, universities, professional athletic associations, golf clubs, and consulting firms, to name a few.

• Business-like income has been the fastest growing source of income for 501(c)(3) tax-exempt organizations over the past 30 years, now accounting for 71 percent of their income. Charitable donations make up just 12 percent of nonprofit income.

• More than half (55 percent) of all the income generated by 501(c)(3) organizations comes from tax-exempt hospitals and health-care plans. The largest nonprofit in America is Kaiser Permanente. Kaiser’s health plan, hospitals, and state health plans generated over $110 billion in revenues in 2019.

• In 2019, there were 325 501(c)(3) nonprofits with more than $1 billion in revenues—nearly all of which are hospitals and universities.

• The unrelated business income tax (UBIT) rules that were intended to rein in tax-exempt businesses have become toothless and have allowed the growth of large nonprofit businesses.

• A reasonable rewriting of the tax-exempt rules should include narrowing the definition of “public charity” and subjecting all non-charitable income to the corporate tax rate of 21 percent. Doing so could raise nearly $40 billion annually in new tax revenues.

Lloyd Mayer

Kim, Macindoe & Faulk: Who Funds Nonprofit Advocacy?

Mirae Kim (George Mason University), Heather MacIndoe (University of Massachusetts Boston), and Lewis Faulk (American University) have posted Who Funds Nonprofit Advocacy? Exploring the Associations Between Revenue Sources and Different Nonprofit Advocacy Tactics. Here is the abstract:

The nonprofit sector plays a vital democratic role via public policy engagement through advocacy, including lobbying. This study investigates the relationships between revenue sources and different forms of nonprofit engagement in public policy. Resource dependence theory suggests that nonprofit efforts to shape their environments through advocacy will be facilitated or constrained by organizations’ interactions with various funding sources. We find that issue advocacy and lobbying indeed are associated with various funding sources in different ways. Managerial capacity, including legal knowledge regarding advocacy, is also significantly associated with both advocacy and lobbying. Importantly, we find that the relationships between revenue sources and advocacy vary across subsectors and that government funding specifically is only associated with advocacy by human service nonprofits. Finally, we examine the association between different funding sources and a set of specific public engagement activities that generally fall under advocacy and lobbying definitions. Our findings demonstrate important nuances beyond the catch-all operationalizations of advocacy/lobbying and highlight the importance of interactions between nonprofits’ external sources of funding and their specific policy engagement activities.

Lloyd Mayer

Kopel: NGO Competition and the Disclosure of Cost Information

Michael Kopel (University of Graz) has posted NGO Competition and the Disclosure of Cost Information. Here is the abstract:

Non-governmental organizations (NGOs) compete in the market for donations through fundraising activities. Commonly, NGOs are hesitant to disclose their fixed costs. In line with research in accounting and economics on disclosure, this paper asks if NGOs that engage in fundraising activities to elicit donations have strategic reasons (not) to disclose information about their fixed costs to rival NGOs. Investigating the voluntary (ex ante) disclosure policies of competing NGOs, I find that the optimal disclosure policy strongly depends on information spillovers, fundraising spillovers, and the donors' assessment of their donations to the two NGOs' projects. If donors perceive their donations as strong substitutes or if fixed cost information of one NGO is not too informative about the rival NGO's fixed costs, then disclosure is a dominant strategy for NGOs. This equilibrium choice of disclosure policies also maximizes welfare in the majority of cases. If donors perceive their donations as weak substitutes or complements and fixed cost information of one NGO is sufficiently informative about the rival NGO's fixed cost (i.e., the correlation between the cost signals is sufficiently high), then a no disclosure policy is adopted in equilibrium. In this situation, the no disclosure choices maximize welfare if the correlation between cost signals is sufficiently high, but not too high. Since welfare is maximized in the majority of cases if disclosure decisions are delegated to the competing NGOs, interventions of a regulatory authority would either be moot or decrease welfare.

Lloyd Mayer

Lee: Representation of women and people of color on nonprofit boards and CEO gender and race

Young-joo Lee (Indiana University Purdue University at Indianapolis) has published Representation of women and people of color on nonprofit boards and CEO gender and race in Equality, Diversity and Inclusion (2024). Here is the abstract:

Purpose
This study examines how the representation of women and people of color on nonprofit boards relates to CEO gender and race.

Design/methodology/approach
This study uses the 2020 data of 501(c)(3) nonprofit organizations in a Southeastern U.S. state. It employs the seemingly unrelated bivariate probit regression to simultaneously estimate the two equations for CEO gender and race.

Findings
The findings show that the proportion of board members of color is positively associated with having a CEO of color and a female CEO. The proportion of female board members is positively associated with having a female CEO, but not with having a CEO of color.

Practical implications
The lack of a positive connection between women’s representation on the board and having a CEO of color may be attributable to the pervasive and systematic Whiteness in nonprofit leadership. The findings suggest that nonprofit boards reflect on the current executive hiring policies and practices to address existing racial biases or barriers.

Originality/value
This study’s findings reveal that the descriptive representation of women and people of color in the governing board is closely linked to their substantive representation in the form of selecting a woman or a person of color as the CEO. The findings also suggest an interconnection between the representation of people of color on the board and having a female CEO. However, women’s representation on the board is not related to having a CEO of color.

Lloyd Mayer

Scott: The Hidden Dynamics of Nonprofit Governance

Brad Scott (Rowan-Cabarrus Community College) has posted The Hidden Dynamics of Nonprofit Governance: Introducing a Framework Using Principal-Agent and Stewardship Theories. Here is the abstract:

This study proposes a novel theoretical framework using a discrete Hidden Markov Model (HMM) to explore the governance dynamics within nonprofit organizations, focusing on the dynamic transitions between principal-agent and stewardship theories. While traditional approaches have often treated these theories in isolation of one another (Caers et al., 2006; Davis et al., 1997), this paper supports the existence of dynamic transitions influenced by underlying, often unobservable factors. The conceptual model using a Markov chain provides insight into the conditions under which nonprofits navigate between alignment with principal-agent conflicts and stewardship-oriented behaviors. This theoretical paper addresses the empirical fragmentation in current research, suggesting a probabilistic approach to understanding governance transitions occurring in nonprofit organizations.

Lloyd Mayer

Aprill on Procedural Elements of Anti-Terrorism Bill H.R. 6408

Ellen Aprill (Loyola L.A.) has posted Comparison of Procedures in Current Section 501(p) and H.R. 6408. Here is the abstract:

H.R. 6408 would amend Internal Revenue Code section 501(p) to suspend the tax-exempt status not only of terrorist organizations, as under present law, but also terrorist supporting organizations. That is, it adds a new category to section 501(p).

This short memo describes the procedural elements of H.R. 6408. It considers only the procedural provisions, not the definition of the new category of “terrorist supporting organizations.” To best do so, it contrasts current procedures with those provided in H.R 6408. This comparison is needed because current procedures are not specified in section 501(p) itself but by cross-reference to provisions of law outside of the Internal Revenue Code. Only by detailing current procedures can both the strengths and weaknesses of the procedures provided in H.R. 6408 be understood.

As explained in the memo, the particular strength of H.R. 6408, as compared to current section 501(p), is that it permits an organization to seek pre-designation review. Its key weakness is that it relies solely on the discretion of the Secretary of Treasury. In contrast, the non-law provisions that trigger designation under current section 501(p) require consultation among various cabinet departments, including the Department of Treasury, the Department of State, the Secretary of Homeland Security, and the Attorney General. The Congressional Research Service Legal Sidebar, “Suspending the Tax-Exempt Status of Terrorist and Terrorist Supporting Organizations,” https://crsreports.congress.gov/product/pdf/LSB/LSB11176, as useful as it is, does not discuss this important difference between current section 501(p) and H.R. 6408.

Lloyd Mayer

Greetings from Chicago and the AMT/EITC Conference!

Hi all from near the campus of the Northwestern Pritzker School of Law, which is hosting the AMT/EITC Conference - a workshop for mid and senior level tax profs.   Some of the ideas being presented are fully baked - mine is only half baked but I am looking forward to getting some wonderful feedback.

I'm super excited for this conference becuase many of the superstars of Nonprofit Law Prof World are here, including Sam Brunson, Ben Leff, Miranda Perry Fleisher, Brian Galle, David Walker, and Phil Hackney.  So many really great discussions about to happen about the tax-exempt world!  I'm going to try to catch up with some of my fellow profs and get permission to talk about their projects in the works.  Since I have my own permission, I can tell you a bit about my work in progress, which we will discuss tomorrow.

You may have heard about the Trust-Based Philanthropy Project - you can find the project's website here: www.trustbasedphilanthropy.org.    They describe themselves as follows:

The Trust-Based Philanthropy Project is a five-year, peer-to-peer funder initiative to address the inherent power imbalances between foundations and nonprofits. At its core, trust-based philanthropy is about redistributing power—systemically, organizationally, and interpersonally—in service of a healthier and more equitable nonprofit sector. On a practical level, this includes multi-year unrestricted funding, streamlined applications and reporting, and a commitment to building relationships based on transparency, dialogue, and mutual learning.

Having worked with many private foundations over the years, the first thing that immediately came to mind as I explored the Project is "What about 4945?  and 4942??"   Typical tax lawyer, I know.   But the reality is that the private foundation excise taxes are rooted in distrust... a deep, deep Congressional distrust of private foundations, their donors, and their governing bodies.  One need only take a spin through the transcript of the Patman Hearings to know that Code Section 4945 does not come from a place of partnership and equity.   The sad fact is that distrust is baked into private foundation grant-making through the tax code.  Can we look at all of the private foundation excise taxes, but especially 4945, through the lens of trust based philanthropy and see if we can't make some changes for the better?  That's my goal in this project.

Coming to a law review near you... TBD!

Hopefully, more reporting from on the ground tomorrow!

Excitedly, eww

 

 

 

Hirsch: Beyond Privity of Blood: Intestacy and Charity

Adam J. Hirsch (University of San Diego) has posted Beyond Privity of Blood: Intestacy and Charity, U.C. L.J. (forthcoming 2025). Here is the abstract:

When individuals die without leaving a will, the law of intestacy functions to distribute their estates to a surviving spouse and/or close blood relatives. Yet, this default regime fails to account for the possibility that some individuals wish to allocate part of their estates to charity. Drawing on empirical evidence, including original data presented here for the first time, this Article advocates building a charitable component into intestacy in those cases where majorities of decedents prefer to establish estate plans transcending traditional heirs. Evidence suggests that this majority preference arises in four situations: (1) where the decedent was extremely wealthy, (2) where the decedent was less wealthy but died without descendants, (3) where the decedent died without descendants and had made charitable donations, irrespective of wealth, and (4) where the decedent died without any known relatives. The Article proposes personalizing the process of intestacy further by granting charitable shares, when called for, to those causes which decedents had individually supported during their lifetimes. The Article assesses the structural costs and benefits of these innovations and concludes that they would not prove excessively complex or administratively burdensome.

Lloyd Mayer

McClelland: Encouraging Charitable Giving: Matching Grants Versus Rebates

Robert McClelland (Tax Policy Center) has posted Encouraging Charitable Giving: Matching Grants Versus Rebates (Apr. 10, 2024). Here is the overview:

The federal government subsidizes charitable contributions for those taxpayers who have positive tax liability and itemize their deductions. However, especially since the passage of the 2017 Tax Cuts and Jobs Act, few taxpayers itemize, and those that do tend to have higher incomes – limiting the progressivity of the deduction. Replacing the charitable contribution deduction with a tax credit is one solution, but that would still only affect donors that file federal returns and owe taxes. This brief considers an alternative: matching grants to nonprofit organizations. A grant system would require neither that donors file returns nor owe taxes, and research also suggests that donors are more incentivized by grants than by equivalent deductions. Contributions to religious organizations pose one complication to this solution, but a carefully designed program could avoid them.

Lloyd Mayer

Pennell & Zhang: Proposals to Restore Faith in Exempt Organizations

Jeffrey N> Pennell and Alex Zhang (both Emory University) have published Proposals to Restore Faith in Exempt Organizations, 183 Tax Notes Federal 284 (Apr. 8, 2024) (subscription required). From the introduction:

This article is about organizations that are exempt from federal income taxation, typically under section 501(c)(3). It is not about restricting the deduction under section 170 for donations to those organizations, nor is it directed toward issues that have spawned controversy about the speed with which certain donees (such as donor-advised funds or private foundations) must distribute or use funds donated to them. It is not a call to arms about the purposes for which certain organizations may use or distribute their funds, nor is it meant to address the alleged politics involved in being regarded as exempt. And it is not a call for all exempt organizations to reveal their donors.

Rather, this article is about the administrative process by which an organization’s exempt status is recognized, and the oversight or review of those organizations after exempt status is approved. It contains a proposal that recognizes the difficulty with which the IRS performs these pre- and post-approval processes, and it acknowledges a nearly indisputable truth: that neither function is being performed effectively or efficiently.

This proposal has implications for federal, state, and local taxation. It consists of three separate but related elements: (1) that the pre- and post-approval processes be delegated to a separate agency, not the IRS; (2) that all EOs be required to report on their activity annually; and (3) that the exempt status of all currently exempt organizations be reconfirmed once. All three elements are meant to restore faith in the integrity of exempt status and to better ensure that exemptions are current and appropriate.

Lloyd Mayer

Ryan, Marsicano, Bernhardt & Martin: Gaming the Endowment Tax

C.J. Ryan (Indiana University Maurer School of Law), Christopher Marsicano (Davidson College), Ann Bernhardt (Texas A&M University), and Ryle Martin (Davidson Martin) have posted Gaming the Endowment Tax, Fla. Tax Rev. (forthcoming). Here is the abstract:

The 2017 law known as the Tax Cuts and Jobs Act (TCJA) enacted a tax on private, non-profit college and university endowments for the first time. Institutions with at least 500 tuition-paying students and endowments of $500,000 or greater per student now have to pay a 1.4 percent tax on their endowments. But like all taxpayers, colleges and universities may be tax averse or seek reductions in their tax burdens. That is, colleges and universities may try to avoid the tax through taking action to ensure they do not meet the threshold. Such actions include increasing their student bodies, increasing student aid to ensure a small number of tuition-paying students, and spending down their endowments. Colleges may also attempt to offset taxed revenue by increasing other revenue streams. Examples of such behavior include increasing revenue from auxiliary services, admitting more “full-pay” students who do not need financial aid, reducing financial aid for tuition-paying students (perhaps even while increasing the number of students who receive enough aid to become non-tuition paying), and admitting fewer low-income students. All of this would be economically rational behavior, but it could produce negative effects for higher-education stakeholder groups, such as students and their families.

In this article, we assess the ramifications of the TCJA’s endowment tax for college and university revenue-seeking behavior. We use a national-level dataset and a quasi-experimental statistical model known as the “Synthetic Control Method,” which is underutilized in legal research, to examine institutional behaviors in the wake of the TCJA’s passage. We find that individual institutions—such as Northwestern University, Duke University, and Vassar College, among others—may have changed their admissions, enrollment, and revenue-generating behaviors to reduce their overall tax burden, offset losses in revenue, or avoid the tax. We suspect that this is evidence of firm behavior to game the endowment tax imposed by the TCJA.

Lloyd Mayer

Widner & Kolinsky: Addressing Structural Impediments to Advocacy by Nonprofit Organizations on Behalf of the Unenfranchised

Kirsten Widner (University of Tennessee) and Heather M. Kolinsky (University of Florida) have published Building Resilience by Removing Barriers: Addressing Structural Impediments to Advocacy by Nonprofit Organizations on Behalf of the Unenfranchised, 92 U. Cin. L. Rev. 786 (2024). Here is the abstract:

Charitable contributions, particularly from private foundations, are an essential source of support for many nonprofit charitable organizations. However, the ability to accept these contributions comes with significant restrictions on lobbying and advocacy. Using vulnerability theory and an original survey of nonprofit advocacy organizations, we show that current restrictions on 501(c)(3) organizations disproportionally limit advocacy on behalf of the most politically disadvantaged groups—those without the right to vote. This, in turn, reinforces existing inequalities in whose voices are heard and whose interests are considered by policymakers. This Article argues that reforming the laws that structure what organizations can take tax-deductible charitable contributions and the purposes for which those contributions can be used is essential to building a more responsive state and improving resilience among the unenfranchised.

Lloyd Mayer

Mamaysky, Managing Nonprofit Endowments

Isaac Mamaysky (Potomac Law Group, adjunct professor at the Elisabeth Haub School of Law at Pace University) has recently published Managing Nonprofit Endowments and Institutional Funds: A Brief Overview of the Uniform Prudent Management of Institutional Funds Act, 128 Penn. St. L. Rev. 151 (2024). The abstract is here:

The article explores the key features of the Uniform Prudent Management of Institutional Funds Act, along with the Uniform Law Commission's comments and explanations, to provide an overview of the national landscape of endowment and institutional fund management.

(As a side note, I--like many law professors in the nonprofit/tax-exempt world, entered from the tax side, not the nonprofit side. So it's great to read scholarship and explanations of nonprofit law, to build up that knowledge base and competency!)

Samuel D. Brunson

Robinson, The Regulation of Foreign Funding of Nonprofits in a Democracy

Nick Robinson (International Center for Not-for-Profit Law) has posted a fascinating article about the regulation of cross-border funding to nonprofits on SSRN. The abstract:

Governments around the world have increasingly regulated nonprofits access to foreign funding. These regulations, which often take the form of registration requirements, are justified as needed to protect a country’s politics from undue foreign influence. Yet, they have also placed new burdens on nonprofits and been used by governments to discredit critics, creating significant new constraints on activism on issues from fighting climate change to protecting human rights. While authoritarian governments have been the most aggressive proponents of these restrictions, many democracies have also embraced variants of them, creating new uncertainty about how foreign funding of nonprofits should be regulated.

In this moment of global regulatory flux, this article argues for what it calls a democracy centered approach. It begins by surveying the quite different regulatory approaches to cross-border funding of nonprofits in the world’s three largest democracies or democratic blocs: the United States, India, and the European Union. It labels their current respective approaches: “ambiguous regulatory heavy-handedness”, “government controlled nonprofit nationalism”, and “rights-based regulatory liberalism.”

Drawing on these examples, the article examines justifications for restricting cross-border funding to nonprofits as well as justifications for more open regulation. Significantly, it finds that perhaps the strongest argument both for and against limitations on foreign funding is protecting a country’s democratic self-governance. It argues that this apparent contradiction is the result not only of competing considerations about what improves self-governance, but also competing understandings of the proper relationship between government and civil society in a democracy.

It then develops a novel framework for how democracies should approach the regulation of cross-border funding of nonprofits that rests on five key principles that should shape and limit any such regulation. The potential benefits of this approach have implications not just for the regulation of the cross-border funding of nonprofits, but also the broader regulation of foreign influence in civil society.

Samuel D. Brunson

Taxation's Limits forthcoming paper by Luís C. Calderón Gómez*

Luis C. Calderon Gomez, Assistant Professor of Law at Cardozo Law, has a new draft paper forthcoming in the Northwestern University Law Review entitled Taxation's Limits that is likely to be of interest to Nonprofit Scholars.

The Abstract is as follows:

"Countless pages have been devoted to the question of why should everyone pay tax, yet its obverse has gone largely unnoticed: why should some people and organizations not pay tax? Our tax system exempts from ordinary income taxation a wide and diverse array of people and organizations engaged in significant economic activity—from parents providing childcare services for their family, to consular activities and charities operating animal shelters—seemingly without a convincing explanation. Perhaps as a result of the dizzying diversity of activities that have been exempted from tax, scholars and policymakers have eluded comprehensively or coherently justifying our exemption regimes.

This Article develops a novel normative theory that rationalizes and justifies our current tax exemption regime. Rather than conceiving exemptions as subsidies or individual deviations from a normative base explainable by ordinary politics, the Article argues that exemptions are best understood as mapping the “limits” of tax. These limits are neither arbitrary nor merely a collection of individual subsidies to favored activities; rather, they are best seen as being reflective of deeper collective socio-political judgments about the scope of the State and the public sphere.

The Article constructs the “Limits Theory” by explaining and justifying the three most significant exemption regimes—those exempting the nuclear family, other sovereigns, and charities. The nuclear family perhaps occupies the center of the private sphere; its location demands exemption due to its intimate and private—not public—character. The exemption for other sovereigns is buttressed in notions of comity and federalism, cautioning against the taxation of a public sphere by other public spheres. Lastly, charities’ unique public-private hybrid character, oriented towards purposes aligned with the public sphere yet operated as private autonomous associations, justifies charities’ exclusion from the ordinary limits of taxation—limits that do extend to ordinary for-profit organizations that strive to both do good and do well. The collective socio-political judgments grounding these exemptions are neither novel nor idiosyncratic; in fact, they are traceable to the work of political theorists of all stripes who seek to define the public sphere, from Rawls’ liberalism to Nozick’s libertarianism and communitarianism à la Walzer or MacIntyre.

In developing a theoretical account, the Article does not only construct a coherent framework for thinking about tax exemptions more generally. Visualizing exemptions as limits rather than subsidies also allows us to explain and justify key common features of the exemptions—e.g., the law’s insistence that the commercial character of an activity vitiates exemption across different exemption regimes, foreclosing the possibility of for-profit charities and supporting the taxation of commercial enterprises run by other States. But perhaps most importantly, the theory illuminates the direction for further examination and refinement of the law. It renders exemptions intelligible and coherent at a more granular level and offers a common and normatively rich framework for scholars and policymakers to engage in more fruitful debates about old and new issues regarding the proper scope of current exemption regimes—for example, on whether the PGA Tour and the Saudi sovereign wealth fund deserve to lose their tax exemptions upon completion of their controversial combination."

Aprill, Loui, & Horwitz: Board Control of a Charity's Subsidiaries: The Saga of OpenAI

Ellen P. Aprill (Loyola L.A.), Rose Chan Loui (UCLA), and Jill R. Horwitz (UCLA) have published Board Control of a Charity's Subsidiaries: The Saga of OpenAI, 182 Tax Notes Federal 289 (2024). Here is the introduction:

Media coverage was hard-pressed to keep up with the fast-moving drama of Sam Altman’s
ouster and reinstatement as CEO of OpenAI. But the focus was on the wrong actor. OpenAI is not just another tech behemoth. It is a set of entities constructed to advance the legal purposes of a nonprofit, tax-exempt charitable corporation. The nonprofit and its tax-exempt charitable purposes, rather than Altman, should have been the star of the show.

Fairly evaluating the board’s decision to fire its CEO, as well as to reinstate him, requires knowing something about the collection of interlocking entities popularly known as OpenAI. OpenAI started as a tax-exempt, nonprofit company organized in Delaware (let’s call that “NonprofitOpenAI”). The board later determined that charitable gifts and grants were insufficient to achieve Nonprofit-OpenAI’s charitable purpose. It therefore created a structure designed to allow for private investments and, at the same time, to protect its charitable purposes. The protection of those purposes will depend on how the members of the board exercise their fiduciary duties.

Lloyd Mayer

Horwitz: Threatening Nonprofit Hospital Tax Exemption - A Better Path Forward

Jill Horwitz (UCLA) has published Threatening Nonprofit Hospital Tax Exemption - A Better Path Forward, JAMA (2024). Here is the introduction:

Unaccountable raiders of the public trust. Rip-off artists. Rapacious exploiters of the vulnerable. These kinds of epithets are more suited to describing criminals than nonprofit hospitals. Nonetheless, confronted with the intractable problems of US health care—rising costs, inadequate insurance, staffing crises, medical debt, intolerable inequity, and more—commentators and policy makers have blamed these systemic failures on nonprofit hospitals, vilifying them in the strongest terms as untrustworthy and undeserving of tax exemption. Detractors argue that tax exemption is justified only if the amount of free health care nonprofit hospitals provide exceeds the value of their tax benefits,1 ignoring the contributions these hospitals make to the public good by curing disease and promoting health.

Regulating nonprofit hospitals in this way would not only fail to fix these systemic problems but also exacerbate harm and inequity in the current system. Fortunately, there are better legal tools to hold nonprofit hospitals accountable to their charitable purposes.

Lloyd Mayer

Murray, Umbers & Wesson: Regulating Political Advocacy by Charities Liberally

Ian Murray, Lachlan Umbers, and Murray Wesson (all University of Western Australia) have published Regulating Political Advocacy by Charities Liberally, 53 Nonprofit and Voluntary Sector Quarterly  236 (2024). Here is the abstract:

In countries such as Australia, Canada, the United Kingdom, and the United States, whether certain classes of civil society groups are eligible to receive state support (by way of tax and other concessions) is primarily based on the entity’s intended purpose. Yet governments often view the advocacy, electioneering, or lobbying activities that are the means adopted by some civil society organizations to achieve their purposes, as unjustified attempts to intervene in the political process. Attempts to restrict these activities are, thus, not uncommon but raise challenges to fundamental tenets of liberal democracies. This article uses recent Australian experience as a case study to analyze such attempts through rule of law and freedom of expression lenses. It focuses on advocacy and electioneering via peaceful protest/civil disobedience activities and argues that charities have a valuable role to play as political actors and that any restrictions should meet the requirements of certainty and proportionality.

Lloyd Mayer

Aprill & Horwitz: What do universities owe their big donors? Less than you might think

Ellen P. Aprill (Loyola L.A.) and Jill Horwitz (UCLA) have published What do universities owe their big donors? Less than you might think, explain 2 nonprofit law experts in The Conservation. Here is the introduction:

Exchanging gifts with family and friends can become fraught with contradictory emotions. Instead of gratitude, the recipients of expensive gifts may wind up feeling indebted to the givers. And the givers can have regrets too.

The same kinds of complicated motivations and expectations can sour relations between big donors and the institutions they support.

This dynamic has been playing out in a very public fashion lately with some high-profile donors to prestigious U.S. universities. At issue for these donors is the schools’ response to debates and demonstrations on their campuses after Hamas’ terrorist attacks on Israel and the Israeli government’s military campaign in Gaza that followed.

Lloyd Mayer

Mayer: Charity Law & Blockchain Technology

I have posted Charity Law & Blockchain Technology: Using Old Wineskins for New Wine?, The Tax Lawyer (forthcoming Spring 2024) on SSRN. Here is the abstract:

Whenever something new emerges, the question of how existing law applies arises. Sometimes it is both easy to answer that question and the answer is consistent with the policy goals of existing law. But sometimes the answer to that question is uncertain, does not fit well with those policy goals, or reflects a mixture of these two issues.

This question is particularly vexing today with respect to new assets facilitated by blockchain technology. These new assets include cryptocurrencies, non-fungible tokens (NFTs), and ownership interests in decentralized autonomous organizations (DAOs). Commentators have written about how certain laws, particularly securities law, apply to these new assets. However, there is one legal area that commentators have yet to fully address: charity law, especially the federal tax laws relating to charities. Charities and donors are increasingly involved in transactions involving these new assets, with little guidance about how this law applies to those transactions.

This Article considers how existing charity law applies to these new assets and, to the extent that application is either uncertain or inconsistent with the policy goals underlying charity law, how charity law should be modified to accommodate these new assets. It concludes that existing law provides sufficiently certain answers regarding its application to these new assets and that application is consistent with the goals underlying that law. But two areas may require further guidance or modification of existing law in the foreseeable future: first, should certain cryptocurrencies be treated as readily valued for charitable contribution tax deduction purposes if sufficiently reliable cryptocurrency exchanges emerge; and second, if charities increasingly use blockchain technology, and particularly DAO governance structures, to further their exempt purposes, when is that use consistent with exemption under federal tax law.

Lloyd Mayer