Saturday, May 21, 2022

Trump Organization & Donald Trump's Presidential Inaugural Committee Pay $750,000 to DC

Download (1)District of Columbia Attorney General Karl A. Racine announced earlier this month that "the Trump Organization and Donald Trump’s Presidential Inaugural Committee (PIC) will be required to pay $750,000 to the District to resolve allegations that the PIC, the Trump International Hotel, and the Trump Organization illegally misused nonprofit funds to enrich the Trump family. Those funds will then be redirected to two nonpartisan nonprofit organizations – Mikva Challenge DC and DC Action – that promote civic engagement of youth in the District."

The payment settles a lawsuit filed by the AG alleging that Inaugural Committee provided improper benefits to the Trump Organization and Trump family members in a variety of ways, including by overpaying for event space, throwing a private party, and repaying a Trump Organization debt. The Consent Motion for the settlement includes language common to such docuoments stating that the resolution is made "without it being in any way deemed or construed as an admission of wrongdoing, unlawful conduct, or liability on the part of Defendants." 

Coverage: NPR, Reuters, Washington Post.

Lloyd Mayer

May 21, 2022 in In the News, State – Executive | Permalink | Comments (0)

Friday, April 15, 2022

Charity Scandals: AME Church Suspends Pensions; Finance Director Stole $4.7 Million from WV Charity; Update on Minnesota's Feeding the Future

DownloadIt sadly has become difficult to keep up with all of the news reports about charity insiders misusing funds - maybe it is time to update the 2003 paper by Marion R. Fremont-Smith and Andras Kosaras on Wrongdoing By Officers and Directors of Charities: A Survey of Press Reports 1995-2002, 42 Exempt Organization Tax Review 25. So I am going to limit my reporting here to several recent reports involving millions of dollars each:

  • AME Church: The Wall Street Journal reports (subscription required) that the African Methodist Episcopal Church "has suspended retirement payments and discussed steep cuts to the savings of its ministers amid an investigation into missing funds." The church further said that there is an ongoing investigation, including by federal law enforcement, of a possible financial crime. The pension fund, which reportedly had about $120 million in assets as of 2017, serves about 5,000 retired clergy and church workers. Additional coverage: Religious News Service.
  • River Valley Child Development Services (West Virginia): MarketWatch reports that a court has ordered the former director of business and finance of this charity to repay $4.7 million that she stole in the wake of her guilty plea and sentencing to seven years in prison. The article goes on to note that as part of her restitution agreement she has agreed to forfeit six airplanes apparently from a small aircraft charter and aviation services company she owned, the proceeds from the sale of three houses, and two cars.
  • Feeding the Future (Minnesota) Update: I previously reported on the apparent diversion of tens of millions of dollars from federal funds provided to this charity. The Star Tribune reports that a judge will now oversee the closure of the charity after a request from the Minnesota Attorney General's office and the charity's board voting to voluntarily dissolve it. The court has begun the process of obtaining financial documentation and a complete inventory of the charity's assets. To date no charges have been filed, but federal and state investigations are ongoing. Extensive additional coverage: N.Y. Times.

Lloyd Mayer

April 15, 2022 in Federal – Executive, Federal – Judicial, In the News, Religion, State – Executive, State – Judicial | Permalink | Comments (0)

Wednesday, April 13, 2022

Hospitals in Illinois, Ohio, and Washington Face Criticism Over Insufficient Charity Care

Download (1)In recent weeks there have been at least three separate news stories about nonprofit hospitals failing to provide sufficient charity care.

In Illinois, the Chicago Tribune reports that a study by the Massachusetts-based Lown Institute found that Advocate Aurora Health and Northwestern Medicine were among the bottom 25 hospital systems in the country when it comes to spending as much on charitable care and their communities as compared to the savings they receive from tax exemptions. The article provide the following summary of the report:

The Lown Institute produced the rankings by looking at how much money 275 private, nonprofit hospital systems reported spending on charity care and community investments. The institute then looked into whether that number matched 5.9% of a system’s overall spending, which, based on research, would likely be about the amount a hospital system is saving through tax exemptions. But the report counted only certain activities toward the amount spent on charity care and community investment while excluding others.

As noted in the article, both hospital systems criticized the report as flawed. The American Hospital Association has also criticized the report.

In Ohio, an opinion piece published on Cincinnati.com relies on a study by the Pacific Research Institute that focuses on how charity care provided by two Ohio hospitals (Good Samaritan Hospital and Miami Valley Hospital) compares to savings the hospitals enjoyed because of the federal government's drug discount program for nonprofit hospitals. According to the author of the piece, "[b]oth hospitals generated hundreds of millions in net patient revenue over the two recent years that the study covered, but gave away tiny amounts of this revenue (0.66% and 1.36% respectively) to charity care."

And in Washington, HeraldNet reports that the state Attorney General has filed a lawsuit against the Providence health care system for allegedly deceiving low-income patients who were eligible for free or discounted hospital care under a longstanding state charity care law. The complaint alleges that the system "engages in practices that obscure the availability of charity care and that convey the deceptive net impression that patients have no option but to pay for their care regardless of their income level." As noted in the article, the system is contesting these allegations.

Lloyd Mayer

April 13, 2022 in In the News, State – Executive | Permalink | Comments (0)

Tuesday, April 12, 2022

Ohio AG Questions Plan by Hebrew Union College to End Training Rabbinical Students in Cincinnati

DownloadThe Jewish Telegraphic Agency reports that Hebrew Union College's board of governors has voted to end training rabbinical students at its campus in Cincinnati, over objections from some HUC faculty, staff, and alumni, and questions from Ohio Attorney General Dave Yost about whether this move violates a 1950 merger agreement with the Jewish Institute in New York. HUC plans to continue to maintain the Klau Library, Skirball Museum, and American Jewish Archives in Cincinnati. Going forward, the rabbinical training will occur at the New York and Los Angeles campuses of HUC.

The news stories do not provide a link to the letter sent by the Ohio AG, but provide this summary of the letter's content:

In a letter sent to top HUC administration this week and obtained by Cincinnati’s WCPO, Yost’s office suggested that HUC could be in violation of its 1950 merger agreement with the Jewish Institute of Religion in New York. In that agreement, HUC had assured donors that the combined institution would “permanently maintain rabbinical schools” in both cities.

The state’s Charitable Law Section chief Daniel Fausey wrote in the letter that the attorney general’s interest in the case was in “ensuring that charities honor the intent of benefactors and serve the interest of intended beneficiaries.”

Additional coverage: WCPO; Cincinnati.com.

Lloyd Mayer

 

April 12, 2022 in In the News, State – Executive | Permalink | Comments (0)

Minnesota AG Applies Charity Law to Crowdfunding Campaign and Obtains Repayment of $120,000

MNAGOMinnesota Attorney General Keith Ellison announced a settlement agreement with an individual who organized an online crowdfunding campaign to honor a deceased public school worker by pay down students' lunch debts. The campaign began as a class service project for a course that the individual, then a college professor, taught. The AG alleged that of $200,000 eventually raised, $120,000 had been accounted for. The individual, while not admitting any wrongdoing, agreed to repay this $120,000 amount to the AG, to be distributed to St. Paul Public Schools for retiring students' lunch debts.

The most notable aspect of this matter is that as detailed in the announcement the Minnesota AG is taking the position that Minnesota law relating to charitable solicitations and charitable assets extends to crowdfunding and other campaigns that raise funds for any charitable purpose, even if neither the person raising the funds nor the intended recipient is a charity. This contrasts with some other states, such as Michigan, where state law explicitly does not reach crowdfunding to benefit specific individuals but instead only reaches crowdfunding done by or for the benefit of a charity. Of course, state (and federal) fraud laws apply to crowdfunding if the organizer lies about the use of the funds donated, regardless of the nature of the organizer or beneficiary.

Coverage: Pioneer Press; N.Y. Times.

For more details about state regulation of charitable crowdfunding, see my paper on the topic (Indiana Law Journal, forthcoming 2022).

Lloyd Mayer

April 12, 2022 in In the News, State – Executive | Permalink | Comments (0)

California AG Forces Fiscal Sponsor to Dissolve and Pay Over $460,000

DownloadLast week California Attorney General Rob Bonta announced a stipulated judgment against fiscal sponsor ZeroDivide and its directors and officers. According to the AG's press release, ZeroDivide operated two program for which it received restricted donations. But when ZeroDivide had difficulty raising sufficient unrestricted funds to pay for its operating costs, it began to use the restricted funds for those expenses to the alleged tune of over $600,000 without informing the relevant donors, much less receiving their consent. ZeroDivide's board of directors was aware of this misconduct and failed to stop it.

As a result of the stipulated judgment:

  • ZeroDivid and its directors and officers are required to pay over $460,000 in damages, penalties, late filing fees, and attorney's fees.
  • ZeroDivide's directors will dissolve the nonprofit and distribute its assets to pay the damages amount, with any remaining assets going to another fiscal sponsor currently hosting one of the projects.
  • Two of ZeroDivide's officers are prohibited for three years from leading a a charitable organization in California or engaging in certain other activities relating to charitable fundraising and assets in California.

Coverage: Chronicle of Philanthropy.

Hat tip: Nonprofit Law Blog

Lloyd Mayer

April 12, 2022 in In the News, State – Executive | Permalink | Comments (0)

Friday, February 25, 2022

AFPF v. Bonta Follow Up: New York Proposed Regulation; Enjoining of Connecticut Paid Solicitor Law

DownloadLast summer's Supreme Court decision in Americans for Prosperity Foundation v. Bonta, striking down California's requirement that charities submit their Form 990 Schedule Bs to the state attorney general, has led to two recent legal developments of interest to nonprofits. 

First, as reported by The NonProfit Times, New York has proposed (see pages 21-23) amending its rules relating to annual financial reports filed by charities required to register with the state to conform with the Supreme Court's decision. More specifically, the proposed rule would provide the following regarding submission of IRS forms:

(a) a copy of the complete IRS form 990, 990-EZ or 990-PF with all required schedules including a Schedule B, unless exempt from such filing pursuant to subsection (b), and

(b) public charities required to submit Schedule B to the IRS must file either (i) a redacted Schedule B with the Charities Bureau, without the names and street addresses of the donors but including the amounts of donations and the states from which those donations were received during the reporting period, or (ii) a statement of the gross amount of contributions received during the reporting period from individuals and entities residing or domiciled in New York (see section C(1)), and

(c) a copy of the complete IRS form 990-T, if applicable.

Comments were due by January 30th. On February 1st, at the ABA Tax Section Meeting, James Sheehan, the Chief of the Charities Bureau at the the New York State Department of Law, said only two comments were received by the deadline. According to Sheehan, one comment said essentially "about time," and the other comment did not apparently relate to the donor disclosure issue at the heart of the Supreme Court's decision.

Second, the U.S. District Court for the District of Connecticut preliminary enjoined several rules applicable to paid solicitors in Kissell v. Seagull, including one requiring paid solicitors to disclosure the names and addresses of donors to the state Department of Consumer Protection upon request (see paragraph 4 of the order, copied below). The court in its opinion supporting the order based the last holding in part on the AFPF decision. More specifically, the court stated:

    The Commissioner cannot meaningfully distinguish Americans for Prosperity Foundation. To the contrary, as noted above, Kissel’s First Amendment claim is stronger than the First Amendment claim in Americans for Prosperity Foundation because it rests not only on the First Amendment right to association but also on the First Amendment right to free speech that is burdened by a content-based law that applies to him as a paid solicitor and that independently triggers strict scrutiny apart from any associational rights.

The court then concluded that the donor record-keeping and inspection requirement was not narrowly tailored to serve a compelling purpose. However, in the actual follow-up order, the court limited the injunction to the inspection requirement while not enjoining the record-keeping requirement:

4. The requirement in Conn. Gen. Stat. § 21a-190f(k) that paid solicitors must disclose the names and addresses of donors to DCP upon request violates the First Amendment in its current form, and Defendant is enjoined from seeking to inspect such information under that provision. Nothing in this judgment and order shall impact or obviate a paid solicitor’s obligation to maintain records about any of the information contemplated by § 21a-190f(k), including but not limited to the names and addresses of donors, if known to the solicitor, or to disclose to DCP upon request any of the information contemplated by that provision other than donor names and addresses.

Lloyd Mayer

February 25, 2022 in Federal – Judicial, State – Executive | Permalink | Comments (0)

Monday, February 21, 2022

Feds Target Two Alleged Multi-Million Dollar Thefts from Charities: Minnesota's Feeding Our Future; California's AME Zion Churches

DownloadI am not sure if anyone keeps a running list of the largest alleged thefts from charities, but if someone does they may have a new top-place finisher. The Star Tribune and other news outlets reported last month that federal authorities executed several search warrants on Feeding Our Future, a Minnesota anti-hunger nonprofit, and its leaders. Federal and state authorities are investigating whether the nonprofit defrauded the U.S. Department of Agriculture out of millions of dollars by spending federal funds to purchase personal real estate, cars, and other luxury items, along with personal vacations. The charity received hundreds of millions of dollars, and a more recent report says investigators now believe at least $48 million was diverted for personal expenses. Additional coverage: Sahan Journal (including details from the unsealed search warrants, although not a link to them). No charges appear to have been filed yet. Hat tip: Chronicle of Philanthropy.

DownloadFederal authorities have also been busy in California, where the L.A. Times reports that the U.S. Attorney's office for the Northern District of California (press release, but without a link to the actual indictment) has charged two former leaders of the AME Zion Church with defrauding California churches to the tune of $14 million. They allegedly did so by re-deeding local congregations' properties in the name of a legal entity they controlled and then using the properties to secure loans that benefitted themselves. Courthouse News Service reports that authorities have arrested both defendants, and one of them has pled not guilty while the other has not yet entered a plea. Additional coverage: Daily Beast. Hat tip: Ministry Watch.

Lloyd Mayer

February 21, 2022 in Federal – Executive, In the News, State – Executive | Permalink | Comments (0)

Friday, January 7, 2022

Nonprofits, January 6th, and the Big Lie

DownloadThere has been a constant stream of news stories relating to the involvement of nonprofits in the January 6th attack and promulgation of the lie that former President Trump won the 2020 election. (Photo credit: Eric Lee / Bloomberg.) Here are some highlights:

  • False Incorporation Papers?The Guardian reported that a federal grand jury has "uncovered evidence that [Trump former lawyer Sidney] Powell filed false incorporation papers with the state of Texas for a non-profit she heads." The papers, submitted in December 2020, listed two individuals as members of the board of directors for Defending the Republic, neither of whom apparently had agreed to serve in this role.
  • Diversion of Funds?: The above report also states that the grand jury is looking into whether Ms. Powell used funds from the same nonprofit that had been given to finance lawsuits challenging the 2020 election results to instead defend herself in defamation cases. Going into more detail, the Washington Post reported that the nonprofit and a Florida successor entity with the same name raised more than $14 million, with the use of most of the funds still unclear.
  • Liability for Groups Involved in Insurrection?: The Washington Post also reported that the D.C. Attorney General has filed a lawsuit against the Proud Boys and Oath Keepers, seeking stiff financial penalties from the groups for their role in the January 6th violence. According to the complaint, the first group is a Texas limited liability company (and it is not clear if it is a nonprofit), while the second group is a Nevada nonprofit corporation. Neither group appears to have federal tax-exempt status based on the IRS Tax Exempt Organization Search feature. Additional coverage: NPR; Reuters; Vanity Fair.

Lloyd Mayer

January 7, 2022 in Federal – Executive, In the News, State – Executive | Permalink | Comments (0)

Wednesday, January 5, 2022

New York Issues Proposed Donor Disclosure Rule In Wake of AFPF Supreme Court Decision

DownloadEarly last month New York issued a proposed rule amending the regulations relating charity annual reports to respond to the Supreme Court's decision in Americans for Prosperity Foundation v. Bonta. See NYS Register (Dec. 1, 2021), at 21-23. As our readers already know, the Court struck down as unconstitutional the California requirement that charities provide to state authorities unredacted copies of Schedule B to the IRS Form 990 series, which lists identifying information for significant donors. New York had a similar requirement, which it suspended in the wake of that decision.

The proposed rule gives "public charities" required to make annual filings (NY Form CHAR500) the option of providing either (1) a copy of Schedule B with the names and addresses of contributors redacted or (2) "a statement of the gross amount of contributions received during the reporting period from individuals and entities residing or domiciled in the state of New York." Note that the use of the term "public charities" apparently means that private foundations will still be required to submit their unredacted Schedule Bs to New York, presumably because those schedules are already publicly disclosed under federal tax law and so arguably are not reached by the Supreme Court's decision. The proposed rule also makes various unrelated amendments to the filing requirements.

Lloyd Mayer

January 5, 2022 in Federal – Judicial, State – Executive | Permalink | Comments (0)

Friday, November 12, 2021

Can the Influence of Major Donors to Charities or Governments Go Too Far?

Download (1)Social media has been filled recently with criticism of the University of California at Santa Barbara and billionaire Charlie Munger for plans to build a massive dorm at the University following detailed plans provided by amateur architect Munger and paid for with a $200 million donation from him. A Washington Post headline summarizes the criticisms (Two doors, few windows, and 4,500 students: Architect quits over billionaire's mega dorm). Of course questions about the possible undue influence of major donors are not new, although usually they involve less prominent projects. For example, earlier this fall the N.Y. Times reported Leader of Prestigious Yale Program Resigns, Citing Donor Pressure (additional coverage: The Economist).

What is perhaps new, or at least newly prominent, are similar controversies relating to donations to governments. For example, over the summer NPR reported A GOP Donor is Funding South Dakota National Guard Troops In Texas, and this fall the Texas Tribune reported Texas has raised $54 million in private donations for its border wall plan. Almost all of it came from this one billionaire. But the biggest such recent gift was detailed in The Chronicle of Philanthropy: Should Philanthropy Fund Government? A $400 Million Gift Settles That Question in Kalamazoo, Mich., for Years to Come (subscription required, but also available from U.S. News/AP). The anonymous gift is almost double the city's annual budget.

Donations to governments raises additional issues, including whether they risk distorting government priorities that otherwise would be decided through the political process and whether they shift power to executive branch officials who solicit such donations and away from the legislatures that normally control government spending. Of course not all government agencies can accept donations. For example, GoFundMe shut down a campaign to raise funds for the federal government's border wall in part because it would have required congressional approval for the government to have accepted the funds. So it is unclear how widespread such donor influence can be on government actions, absent legislative action.

Lloyd Mayer

November 12, 2021 in Federal – Executive, In the News, State – Executive | Permalink | Comments (0)

Wednesday, November 10, 2021

Minnesota AG Forces Charity to Restructure & Replace Leadership

EllisonMinnesota Attorney General Keith Ellison announced in early September that his office had agreed to a settlement with the nonprofit BFW Institute of Education & Research that requires the organization to replace its directors and officers and restructure its operations to end alleged self-dealing transactions. While allegations of self-dealing are unfortunately all to common with nonprofits, the complexity of the alleged scheme here is interesting.

From the AG's press release:

BFW issues grants for pain-relief care to veterans, first responders, law enforcement personnel, and their family members. The court order that the Attorney General’s Office filed today alleges that, under prior leadership, BFW approved only its related pain-relief provider, Ultimate Wellness Center (“UWC”) for grantees to seek care.  BFW’s relationship with UWC — which is wholly owned by BFW’s founder — had never been competitively evaluated, appropriately documented, or negotiated at arm’s length. 

BFW’s structural issues also contributed to unchecked conflicted decision-making. These conflicts took several forms, including:  

  • Four of BFW’s five directors had a financial interest in or were otherwise affiliated with UWC or in the two entities subcontracted to provide patient care at the clinic. 
  • None of BFW’s “approved provider” relationships, financial transactions, or other conflicted director arrangements were disclosed to or discussed by the Board of Directors when it entered into transactions, renewed agreements, or elected directors to the Board. 
  • Save for one, none of BFW’s board members signed required annual statements disclosing potential conflicts. 
  • BFW gave its founder and its Treasurer the authority to borrow money on behalf of the corporation and did not require the Board to approve loans—even those taken from BFW’s founder. 

As a result, BFW became heavily indebted to its founder and his related entities. BFW started borrowing money from its founder and his businesses as far back as FYE 2012, when it owed $88k. As of FYE 2020, BFW owed $712k to its founder individually and $1k to one of his businesses. The loans were not board-approved, had no written agreement, and some were not disclosed on BFW’s tax returns as insider loans. The loans were ostensibly taken out to fund veteran care, but grantee checks were to be redeemed only at insiders’ for-profit care providers. From 2016 through 2019, BFW made $2,020,607 in grants for care that were to be redeemed at those insider-owned providers. 

Coverage: Minnesota Star Tribune; Sun Post.

Lloyd Mayer

November 10, 2021 in In the News, State – Executive | Permalink | Comments (0)

Friday, September 3, 2021

Former CEO of Florida Coalition Against Domestic Violence Agrees to Repay $2.1 Million

6a00d8341bfae553ef0264e2e23ccf200d-120wiFlorida officials annnounced last week that the former chief executive officer of nonprofit Florida Coalition Against Domestic Violence has agreed to repay $2.1 million in alleged excess compensation paid to her, the Miami Herald reported. In addition, the nonprofit's insurer agreed to pay an additional $1.7 million to the Department of Children and Families and a court-appointed receiver, and two other former officers agreed to pay $60,000. The nonprofit will be dissolved.

As previously covered in this space, the settlement grew out of a state audit triggered by the reported $761,000 paid to the CEO for the fiscal year that ended on June 30, 2017. The nonprofit received almost of its funding from the state of Florida, which it would then distribute to domestic violence centers throughout the state. It eventually came out that the CEO had in fact been paid more than $7.5 million over three years. According to the most recent news report, the state alleges that the board compensation committee worked with the CEO to conceal the high level of compensation that she received. But the CEO's attorney pushed back on the assertion that the amount of compensation paid was improper or excessive.

Lloyd Mayer

September 3, 2021 in In the News, State – Executive | Permalink | Comments (0)

Wednesday, September 1, 2021

First Effects of the AFPF Donor Disclosure Decision and Additional Analysis

UntitledUPDATE: 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

September 1, 2021 in Federal – Judicial, In the News, Publications – Articles, State – Executive | Permalink | Comments (1)

Tuesday, August 24, 2021

New York Suspends its Collection of Schedule B

The New York Attorney General's Charities Bureau chose to suspend its collection of Schedule B with substantial donor information. It intends to study the question of whether it can constitutionally collect this information in light of the recent Supreme Court decision in Americans with Prosperity Foundation v. Bonta.

They state: "The New York Attorney General’s Charities Bureau has suspended its collection of IRS Form 990 Schedule B while we review any amendments that may be necessary to our policies, procedures and forms in order to comply with the U.S. Supreme Court’s decision in Americans for Prosperity Foundation v. Bonta (594 U.S. __, 2021). Effective immediately, charities’ annual filings will no longer require disclosure information that identifies donors. Any notices that charities have received regarding any deficiency due to missing or incomplete Schedule Bs are no longer operative as to such deficiency, and annual filings will no longer be considered deficient in such regard."

August 24, 2021 in Current Affairs, State – Executive | Permalink | Comments (0)

Saturday, May 15, 2021

DAFs Add a New Twist to Politicians & Nonprofits

DownloadPoliticians have long taken advantage of close ties with nonprofits in a number of ways. For example, just in the past couple of weeks there have been news stories about a 501(c)(4) nonprofit chartering a flight on which the Michigan governor purchased a seat for a trip to see her father (see also this story), and "How a top New York mayoral candidate used a charity to boost his profile". But in a new twist, the L.A Times has now run two stories about how charities associated with California politicians have used donor advised funds to obscure the original sources of donations.

One story was titled "How a $1-million donation on behalf of Newsom was hidden in plain sight". As required by California law, California Governor Gavin Newson repotted the gift as given on his behalf. But he did not apparently have to report who arranged for the gift because it came from a donor advised fund at the Silicon Valley Community Foundation. This allowed the original source of the funds- and who advised that the gift be made - to be hidden even though according to the story "[u]nder California law, when an elected official or someone acting on their behalf asks that a donation of $5,000 or more in cash or services be directed to a nonprofit or government agency, that contribution is considered a behested payment and must be reported to the [California Fair Political Practices Commission]." 

And the L.A. Times also reported this week that "Donors gave millions to Garcetti nonprofit but kept their identities secret, Times analysis finds". The story focuses on a charity founded by Los Angeles Mayor Eric Garcetti that has raised over $60 million, including at least $3.8 million from donor advised funds. The Mayor is subject to the same law mentioned above, but has refused to reveal the original source of the funds or who advised that the various donations be made.

Lloyd Mayer

May 15, 2021 in In the News, State – Executive | Permalink | Comments (0)

Friday, May 14, 2021

DAFs and Redirected Giving Report; The Role of State AGs in Regulating DAFs

Andreoni Photo (592x800) ProfileImage.imgLast week the Boston College Law School Forum on Philanthropy and the Public Good released a report by James Andreoni (U.C. San Diego) and Ray Madoff (Boston College ) titled Impact of the Rise of Commercial Donor-Advised Funds on the Charitable Landscape 1991-2019. Here is the conclusion:

This report has examined existing data about changes in the charitable landscape since the creation of the first commercial donor-advised fund. The following are the key findings of this analysis:

  • There is no evidence that the proliferation of donor advised funds has resulted in an increase in individual charitable giving as individual giving has remained largely constant as a percentage of disposable income, and is currently at the low-end of the range.
  • While individual giving has remained largely constant, there has been a substantial shift in this giving toward donations to private foundations and donor-advised funds and away from direct giving to charities. Combined giving to donor-advised funds and private foundations has increased from 5% in 1991 to 28% in 2019, an increase of 460%.
  • The value of assets in donor advised funds and private foundations have increased
    significantly over the past thirty years.
  • Though more funds are flowing into, and growing in, private foundations and donor advised funds, there is no evidence that charities have benefitted from this trend.
  • In the five-year period prior to 1991, charities received on average 94.1% of all
    individual giving. By contrast in the years 2014-2018 (the most recent years for which data is available), total donations received by charities (including grants from private foundations and donor-advised funds as well as direct giving) equaled between 71-75% of total individual giving.
  • If charities had received donations at the rate of 94.1% of individual giving (the average rate that they received in the 5-year period before commercial donor-advised funds), they would have received an additional $300 billion over those 5 years.

Coverage: Chronicle of Philanthropy

The Minnesota Council of Nonprofits also recently posted a paper presented at a conference a year ago titled Private Foundation Grants to DAFs: Attorney General Charitable Trust Oversight Calls for Disclosure of Use of Funds. Here is the abstract:

$3 billion was transferred from over 2,200 U.S. private foundations to five donor advised fund (DAF) sponsors between 2010 and 2018. Within this universe, a growing number of private foundations have made a single grant during a reporting year to a commercial DAF. Looking just at transfers to the top five commercial DAF sponsors, 35 foundations transferred the entirety of their annual grantmaking to DAFs between 2010 and 2018.

These transactions offered no tax benefit, but in effect excused private foundations from two legal requirements for U.S.-based private foundations derived from the Tax Reform Act of 1969: reporting grant recipients1 and the 5 percent annual payout requirement.2 Such grantmaking, while facially charitable and in-line with the requirements put forth in the 1969 legislation, not only risks breaches of restrictions established by the foundations’ founding documents but also obscures all aspects of the recipients of private foundation funding by providing no context for when or where the charitable dollars will be used.

Private foundation-to-DAF transfers frustrate state attorneys general’s ability to fulfill their supervisory duties to monitor and ensure that charitable dollars held by charitable trusts are used for their intended purpose.

This paper examines the governing authority and practices of state attorneys general offices as relating to a special problem of charitable trust enforcement: private foundation grantmaking to commercial DAFs. The authors examine the regulatory challenges based on interviews with both current and former attorneys from nine attorney general offices, as well as interviews with commercial DAF sponsors. Charities regulators’ ability to fulfill their supervisory duties related to private foundation-to-DAF grantmaking is blocked by the lack of transparency on the use of funds transferred to DAFs. Thus, charities regulators cannot ensure that private foundations’ grantmaking fulfills restrictions on their charitable giving, and the public is unable to see charitable activity ordinarily subject to public inspection.

In order to equip charity regulators to effectively enforce state charitable trust requirements, the paper concludes with two recommendations:

1. Charitable trusts should be required to report to state attorneys general all grants made or approved for future payment from DAF accounts to which they have transferred funds, subject to public inspection, and

2. Attorney General’s offices should respond to the growth of charitable funds held in trust by devoting increased resources to monitoring charitable trusts and donor advised funds.

Lloyd Mayer

May 14, 2021 in Publications – Articles, State – Executive, Studies and Reports | Permalink | Comments (1)

Friday, April 2, 2021

Solicitation Update: States & FTC Crack Down on Fraud; Crowdfunding Grows; Donors Test Their Influence

6a00d8341c4eab53ef0263e96a4c59200b-300wiThere has been a steady drumbeat of news stories reporting that state authorities and, on occasion, the FTC continue to scrutinize and prosecute individuals who allegedly engage in fraudulent charitable solicitation. Some of the cases involve tried-and-true techniques, such as purporting to raise funds to help veterans, while others reflect more recent events, such as attempting to capitalize on support for the Black Lives Matters movement. Here are recent examples from just last month:

It is not surprising that there is fraud in this area, as it has been increasingly easy to raise funds quickly for a variety of legitimate causes. Again just in the past month. Facebook and Instagram announced that users had donated more than $5 billion over five years to nonprofits through campaigns on those platform, and the AP reports that millions of dollars have poured in through crowdfunding campaigns to aid the families of the Atlanta shooting victims. Crowdfunding can also be used for more controversial causes, as illustrated by The Guardian's report that far-right extremists have raised millions of dollars via social media, among other channels.

Finally, some prominent donors are trying to use their influence to affect the charities they support. The Washington Post reports that James Huntsman has filed a federal lawsuit against the LDS Church, alleging it misused millions of dollars of his family's donations by using them for commercial purposes. And some wealthy supporters of the University of Texas have waded into the controversy over the school's fight song (Eyes of Texas), vowing to pull their donations unless the school retains it.

UPDATE: In another case of a disgruntled donor, a Sinclair anchor is demanding $20 million from the WE charity that has been at the center of a charity scandal in Canada. The amount is in addition to a demand for return of donations the anchor made, and is for "destruction of [the donor's] character and marketability as a journalist, public speaker, filmmaker, and author."

Lloyd Mayer

April 2, 2021 in Federal – Executive, In the News, State – Executive | Permalink | Comments (0)

Friday, December 11, 2020

CA Counters US Call for SCOTUS to Grant Cert in CA Sched B Disclosure Case

In Americans For Prosperity Foundation v. Becerra, California recently filed a Supplemental Brief countering the US brief in the case, which argued that while the US Schedule B requiring donor disclosure of charitable organizations was constitutional, the California version was unconstitutional:

"1. The United States principally contends that the court of appeals applied the wrong standard of scrutiny. U.S. Br. 8-19. But it is difficult to see any material difference between the standard embraced by the United States and the one applied below. According to the United States, “compelled disclosures that carry a reasonable probability of harassment, reprisals, and similar harms are subject to exacting scrutiny.” Id. at7. Exacting scrutiny, in turn, calls for “a form of narrow tailoring” (id.) that requires “‘the strength of the governmental interest [to] reflect the seriousness of the actual burden on First Amendment rights’” (id. at 9); that dem ands a means-ends fit that is “‘reasonable’” but not “‘perfect’” (id. at 16); and that ensures that the compelled disclosure does “not sweep significantly more broadly than necessary to achieve [a] substantial governmental interest” (id. at 12). See also id. at 9 (compelled disclosure requirements are valid where “the public interest in disclosure outweighs the harm”) (internal quotation marks and ellipses omitted). The United States also asserts that “narrow tailoring is to  some degree implicit in the requirement that the governmental interest in the compelled disclosure be ‘legitimate and substantial’” because “it is difficult to demonstrate a ‘substantial’ interest in a broad disclosure scheme when narrower disclosures would be sufficient.” Id. at 10-11.

The court of appeals held that California’s Schedule B filing requirement is subject to “‘exacting scrutiny,’” and it understood exacting scrutiny in the same way as the United States. Pet. App. 15a.1 It recognized that the “strength of the governmental interest must reflect the seriousness of the actual burden on First Amendment rights.” Id. (internal quotation marks omitted). It examined whether the State’s chosen approach swept too broadly. See id. at 19a-23a, 29a. And it determined that concerns about overly broad regulation are part and parcel of the substantial-relationship test. See id. at 15a-16a (requirement “that the State employ means ‘narrowly drawn’ to  avoid needlessly stifling expressive association” is not “distinguishable from the ordinary ‘substantial relation’ standard”).

The United States ignores the overlap between the court of appeals’ approach and its own and asserts that the lower court erred in declining to require an adequate means-ends fit. U.S. Br. 16. But what the court of appeals declined to adopt was “the kind of ‘narrow tailoring’ traditionally required in the context of strict scrutiny,” including the requirement that “the state . . . choose the least restrictive means of accomplishing its purposes.” Pet. App. 16a; see also Opp. 6, 14-15. And the United States itself agrees that strict scrutiny and its “particularly stringent form of narrow tailoring” do not apply to information-reporting requirements like the one at issue here. See U.S. Br. 16."

Philip Hackney

December 11, 2020 in Current Affairs, Federal – Judicial, State – Executive | Permalink | Comments (0)

Friday, November 20, 2020

N.Y. Attorney General's Office Releases Guidance on Property Appraisals for Transactions

DownloadThe Charities Bureau in the Office of the New York State Attorney General  recently released Guidance on Appraisals of Property for Not-for-Profit and Religious Corporations Seeking Approval of Property Transactions by the Attorney General or the Court. This guidance is particularly timely given that many nonprofits, in New York and elsewhere, are likely having to consider selling property in order to shore up their finances because of the pandemic.

Lloyd Mayer

November 20, 2020 in State – Executive | Permalink | Comments (0)