Friday, June 12, 2020
There have been new developments in two matters previously covered in this space, specifically the proposed sale of the .ORG domain - virtual home to most nonprofit organizations - to a private equity firm and the ongoing controversy regarding the compensation paid to the CEO of the Florida Coalition Against Domestic Violence.
With respect to the .ORG domain sale, the California Attorney General issued a lengthy letter urging the Internet Corporation for Assigned Names and Numbers (ICAAN) to reject the sale by the Internet Society of the .ORG domain (technically, a "registry") to Ethos Capital, a private equity firm. In the wake of that letter and appeals from a number of prominent nonprofit organizations, including the Electronic Freedom Foundation and the National Council of Nonprofits, ICANN vetoed the $1.1 billion deal. Coverage: N.Y. Times, Reuters.
With respect to the Florida Coalition Against Domestic Violence, the Miami Herald reports that a state court judge ordered the dissolution of the nonprofit at the request of the Florida Attorney General and placed the organization's assets under the supervision of a bankruptcy expert. The dissolution came in the wake of the discovery that the nonprofit had paid its chief executive officer more than $7.5 million over three years as compensation. It is not clear whether the nonprofit's board knew about and approved the compensation, or simply allowed itself to remain ignorant of the financial arrangements with the CEO. State and federal investigations are continuing. The Tampa Bay Times also reports that the same receiver now has been given control by the courts over the assets of the separate foundation that existed to support the Coalition.
One helpful service that government agencies can provide is issuing reports summarizing their activities, saving researchers and practitioners the work of gathering such information piecemeal based on reviewing every pronouncement and ruling that is issued. Two recently issued summaries relating to nonprofit law are particularly helpful in this regard, one relating to state enforcement efforts and the other to federal charitable contribution deduction disputes.
First, the National Association of State Charity Officials (NASCO) has issued a report detailing the activities of state officials with respect to charities from January 2019 to March 2020. From the introduction:
The contents of this report are a representative sample of cases and other initiatives from January 2019 to March 2020 in the areas of: I. Deceptive Solicitation; II. Governance and Breach of Fiduciary Duties; III. Trust & Estate Issues; IV. Health Care; and V. Other, including Registration, Legislation, and Guidance. Descriptions were provided by the relevant state, and questions regarding particular cases should be directed to that state. Contact information for state regulators can be found at www.nasconet.org.
Second, the Office of Chief Counsel, Internal Revenue Service has released an internal memorandum (CCA 202020002) that summarizes the issues and holdings in 121 federal court decisions from 2012 through mid-April 2020 relating to the charitable contribution deduction under Internal Revenue Code Section 170.
Wednesday, April 22, 2020
And the pandemic has been devastating to the arts world, a world that quite frequently relies on public performance both to raise revenue and to encourage donors. The novel coronavirus has devastated the jazz world (which is my love), killing jazz legends and shutting down performance spaces.
And then there's dance, an art form perhaps less-well-known and less appreciated than jazz. In Illinois alone, dance companies expect to lose $4.5 million in revenue through April 30, and more if (as is likely) the shutdown lasts longer. Hubbard Street Dance Company, for instance, ended up cancelling the last week of its Decadence tour in Italy in February and then, hours before it opened the performance in Chicago, Gov. Pritzker ordered closed gatherings of more than 1,000 people, closing the performance before it opened.
So how do arts organizations survive? Fortunately, the federal government has provided some help, including the Paycheck Protection Program and $75 million to be distributed by the National Endowment for the Arts.
State and local governments have been stepping up too. Chicago and Illinois have joined together with the Arts for Illinois Relief Fund, which provides grants to artists and arts organizations. The Fund is funded by the city, the state, and private philanthropy (of both the wealthy and the ordinary person type).
Still, the ability of arts organizations to weather this storm, while backstopped by state and philanthropic money, is, at best, tenuous. Once we get past the current crisis, arts organizations may need to rethink their funding models.
In the meantime, while I'm familiar with the steps Chicago and Illinois are taking to protect nonprofit arts organizations, I am less aware of what other cities and states are doing. Does anybody have examples of COVID-19-related support that their city or state is undertaking to protect and shore up the arts?
Samuel D. Brunson
Thursday, April 16, 2020
Coronavirus Nonprofit Law Additional Roundup: Chronicle on Philanthropy Coverage; JCT Scoring; DAFs & Private Foundations; State Guidance
Chronicle of Philanthropy Coverage: The Chronicle of Philanthropy is providing a series of articles to help nonprofits deal with the coronavirus crisis. Notable entries relating to legal topics include:
- How the New $300 "Universal" Deduction Works (flagging not only the uncertainty about how long the deduction is available but also whether a married couple filing jointly can claim a $600 deduction)
JCT Scoring of CARES Act: See the numbers below for the projected revenue effects of the CARES Act charitable contribution deduction provisions from Joint Committee of Taxation publication JCX-11-20. Perhaps most importantly, and as flagged by a commentator on my initial roundup, JCT takes the position that the $300, above-the-line charitable contribution deduction sunsets on 12/31/2020, although I still have not found statutory language to this effect.
Provision Effective 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2020-25 2020-30
4. Allowance of partial above
the line deduction for charitable tyba 12/31/19 -310 -1,241 --- --- --- --- --- --- --- --- --- -1,551 -1,551
contributions (sunset 12/31/20)
5. Modification of limitations
on charitable contributions tyea 12/31/19 -1,080 -3,748 2,403 741 367 45 179 --- --- --- --- -1,272 -1,093
[Millions of Dollars; Years are Fiscal Years; tyba = taxable years beginning after; tyea = taxable years ending after]
DAFs and Private Foundations: As many nonprofits and particularly charities brace for a sharp downturn in donations, numerous commentators are calling on advisers and sponsoring organizations for donor-advised funds and management for private foundations and other funders to increase and modify their giving. Examples from the Chronicle of Philanthropy include:
- David Biemesderfer, Grantmakers Must Put Equity at the Forefront of the Coronavirus Response
- Alan Cantor, Save Lives Now, Grant Makers and Donors
- Terry Mazany, The Coronavirus Outbreak Could Prove Why Donor-Advised Funds Serve Society
- Lauren Smith, How to Help the Most Vulnerable Through the Pandemic
State Guidance: The New York Attorney General's Charities Bureau has issued Guidance for Charitable Nonprofit Organizations Facing the Challenges of the COVID-19 Pandemic. Topics covered include:
- How the Charities Bureau Can Help
- Registration with the Attorney General's Charities Bureau
- Additional Extensions of Times to File
- IRS Extended IRS Form 990 Filing Date
- Reserves, Restricted Assets, and Use of Endowment Funds
- Filing a Complaint with the Charities Bureau
- Resources for Charities
Wednesday, April 15, 2020
This blog has been on hiatus as its contributors have dealt with moving their courses to online delivery, supporting students facing many stressful situations, and of course dealing with the personal impacts on us and our families of the pandemic. It therefore seems appropriate to start with an initial roundup of nonprofit law-related coronavirus topics before turning to other recent nonprofit law developments.
CARES Act: Many provisions of the CARES Act (Pub. Law No. 116-136) could be relevant to most nonprofits, but three provisions stand out in particular:
- Partial Charitable Contribution Deduction for Individual, Non-Itemizers (section 2204): Modifies Internal Revenue Code section 62 by adding paragraph (a)(22) and subsection (f) to allow individuals who do not itemize their deductions to deduct, above-the-line, cash charitable contributions (as defined in section 170(c)) of up to $300 total made in taxable years beginning after December 31, 2019. Supporting organizations and donor-advised funds are not eligible recipients, but private foundations are.
- Temporary Elimination or Increase of Limits on Certain Charitable Contribution Deductions (section 2205): Modifies IRC section 170 by eliminating the contribution base percentage limit on charitable contributions by individuals and increasing the taxable income percentage limit on charitable contributions by corporations from 10 percent to 25 percent for cash contributions made during the 2020 calendar year. Again, supporting organizations and donor-advised funds are not eligible recipients, but private foundations are.
- Small Business Administration Loans: Section 501(c)(3) organizations, including religious ones, are eligible to participate in the Paycheck Protection Program (sections 1101-1106) if they satisfy number of employee (usually 500 or less) and other requirements, and all private nonprofits are eligible to participate in the Emergency Economic Injury Grants program (section 1110) if they satisfy that program's number of employee (usually 500 or less) and other requirements. For more details about these programs, see the SBA website; there is also an informative webinar on the Pittsburgh Foundation's website (dated April 10th) on this topic, as well as additional webinars on other coronavirus, nonprofit-related topics.
Coverage: Independent Sector; National Council of Nonprofits. Interestingly, these summaries state that the above-the-line deduction provision applies to contributions made in 2020, but the statutory language appears to make this provision permanent in that it applies "to taxable years beginning after December 31, 2019" without any expiration date and so it should be available for cash contributions made after 2020 as well. An analysis by the University of Pennsylvania's Wharton School, which states the above-the-line deduction is only available for contributions made in 2020 (I believe incorrectly), predicts that deduction will cost $2 billion but will only increase charitable contributions in 2020 by $110 million.
Extended IRS and State Filing Deadlines: In Notice 2020-23, the IRS explicitly extended to July 15, 2020 the deadline for filing (and paying any related tax owed) Form 990-PF, Form 990-T, Form 990W, and Form 4920 if they otherwise would have been due on or after April 1, 2020 and before July 15, 2020. In addition, by cross-reference to Revenue Procedure 2018-58 (see Section 10) the IRS also also extended to July 15, 2020 the deadline for filing a wide range of forms relating to tax-exempt organizations, including Form 990, Form 990-EZ, Form 990-N, Form 1023, Form 8871, Form 8872, and Form 8976 if they otherwise would been due during the same time period. For an analysis of this cross-reference, see this post by Laura J. Kenney of Blum Shapiro. Hat Tip: EO Tax Journal.
The IRS has also announced in a memorandum that it is permitting examination agents and managers to use "an increased reasonable application of business judgment" when applying the otherwise applicable deadlines for responding to information document requests and follow-ups during enforcement actions. This "temporary deviation" from the otherwise applicable requirements for enforcing such deadlines is in effect through July 15, 2020.
Finally, states are extending deadlines for required filings by nonprofits. For example, the New York Attorney General's Charities Bureau has announced it will grant an automatic six-month extension for annual financial reports originally due after February 15, 2020.
More updates to follow. Stay safe.
Thursday, February 6, 2020
Giving Issues: Recent Trends, More Bad Publicity for DAFs, and Greater Transparency for the PayPal Charitable Gift Fund
Starting with giving trends, in a lengthy Nonprofit Quarterly article Patrick Rooney (IUPUI Lilly School of Philanthropy) documents in great detail "the continued decline of the small donor and the growth of megadonors," with the former trend possibly accelerating because of the 2017 federal tax changes. That said, the effects of these trends likely will not affect all charities equally - a CNBC report indicates that while the largest, well-known organizations are still seeing increasing giving, many smaller, local charities are facing giving declines even in the midst of a a growing economy. And according to a study by Wealth-X, younger "ultrawealthy" donors tend to focus on one or two causes, which may further skew changes in giving levels. That said, a report from Cygnus Applied Research (executive summary requires free registration; full report must be purchased) found that most donors planned to maintain their giving amount in 2019 as compared to 2018, with 29% planning to give more and only 10% planning to give less.
The Rooney article includes a section on donor advised funds, finding that they are both continuing to grow significantly and "remain largely the realm of large donors." That growth is despite continuing bad publicity for DAFs, including news stories that both Google's Larry Page (through $400 million in grants from the Carl Victor Page Memorial Foundation) and Facebook's Sheryl Sandberg ($230 million in Facebook stock) had used giving to DAFs to, respectively, satisfy the private foundation payout rate and (presumably) generate substantial charitable contribution deductions without having to transfer funds to actual operating charities. To be fair, the funds may have eventually ended up at operating charities; there is just no way to know for sure. At the same time, the Chronicle of Philanthropy reports (subscription required) almost half of nonprofits surveyed said that DAFs hamper their ability to build relationships with donors. But there is not a complete lack of regulation of DAFs, as Tax Notes reports (subscription required) that the National Outreach Foundation has been forced to go to court to challenge the IRS' revocation of its tax-exempt status for allegedly using its role as a DAF sponsor to facilitate a tax avoidance scheme similar to one flagged by the IRS in Notice 2004-30.
Finally, the NonProfit Times reports that last month nearly two dozen states and the District of Columbia settled a dispute with the PayPal Charitable Gift Fund, Inc., the charitable arm of PayPal. According to a press release from the New York Attorney General (which also provides a link to the actual agreement), the Fund agreed to make sure donors know they are giving to the Fund, the timeframe for the selected ultimate charitable recipient to receive the donated funds, the difference between "enrolled" and "unenrolled" charities on the platform, and whether the donor's gift has been diverted to a different charity than the one the donor designated. The Fund also agreed to pay $200,000 to the National Association of Attorneys General, to be used to defray investigation and litigation costs relating to charities and to provide training and education for charity regulators.
Even though President Trump appears to have finally settled the legal issues arising out of his private foundation with the payment of the $2 million in damages owed late last year, other charity-related issues have arisen for organizations and individuals associated with him. These include renewed allegations that one of the President's impeachment lawyers and his family improperly benefitted from a network of charities to the tune of $65 million, a lawsuit by the District of Columbia Attorney General against the section 501(c)(4) 58th Presidential Inaugural Committee and for-profit entities owned by Mr. Trump and his family for alleged private inurement, reports that a section 501(c)(3) charity is giving away amounts totaling tens of thousands of dollars to hoped-for African American Trump supporters, which may not be a charitable activity, and a megachurch hosting a Trump political rally, raising questions about whether doing so violated the section 501(c)(3) prohibition on political campaign intervention.
But President Trump and those around him are far from the only political actors to engage in allegedly questionable behavior when it comes to charities, as Jack Siegel documented more than 10 years ago in The Wild, The Innocent, and the K Street Shuffle: The Tax System's Role in Policing Interactions Between Charities and Politicians (subscription required). Here is an undoubtedly incomplete list of such stories from across the political spectrum:
- As Florida House Starts Investigating Domestic Violence Nonprofit, Exec Has No Answers (Miami Herald): This investigation grew out of earlier reports questioning the high compensation paid to the CEO of this politically connected charity, which state law requires be contracted with by the Florida Department of Children and Families.
- Lawmaker Accused of Theft From Charity Announces Resignation (U.S. News/AP): A Pennsylvania state representative stepped down in the wake of the state Attorney General filing criminal charges against her, alleging that she stole more than $500,000 from a charity she operated.
- Minnesota Attorney General's Suit Accuses Former Ramsey County Commissioner of Mismanaging Charity's Funds (Star Tribune): The lawsuit alleges that the former Commissioner and others at a now-defunct veterans charity had mismanaged government funds, including through engaging in self-interested, related party transactions.
- Sloppy Accounting, Funding Debts: A Look at Maya Rockeymoore Cummings's Charity (Washington Post): This story documents a close financial relationship between a charity run by the widow of Elijah Cummings (and now candidate for his congressional seat) and her for-profit consulting firm, a relationship that was apparently not fully reported on the charity's IRS returns.
- State AG Probes Lawmakers' Charity Over Failed Minority Student Scholarships (N.Y. Post): The New York Attorney General's office has reportedly launched an investigation into whether a charity associated with a number of state lawmakers failed to pursue its stated mission of providing scholarships to needy minority students, instead focusing on events for its lawmaker members and other activities.
Wednesday, January 29, 2020
As reported in the Honolulu Civil Beat, in late November 2019, the Hawaii Attorney General issued a subpoena seeking a nonprofit organization’s bank records for nearly three years (2017 through most of 2019), including monthly statements, deposit tickets and ATM surveillance photos. What might seem like a routine exercise of AG oversight over a charitable organization within its jurisdiction, the history between the AG and the nonprofit, KAHEA: The Hawaiian Environmental Alliance, presents a different optic. KAHEA has been at the center of the fight against the Thirty Meter Telescope on Mauna Kea on Hawaii's Big Island, including adversarial court proceedings between the two parties. Shrugging off any claims that its subpoena action constitutes "retaliation and harassment," the AG argues that it is fulfilling its responsibility of regulating charitable organizations and presents two primary justifications for its investigation: (1) the use of tax-deductible donations for activities of civil disobedience are not permitted under the tax laws (specifically, federal tax law); and (2) KAHEA’s purported non-filing of the Attorney General’s annual disclosure form (Federal Form 990) for several years.
In response to KAHEA's motion to quash the subpoena, the AG asserts that donations to KAHEA have supported "non-violent direct actions"--namely, the "five-month-long illegal blockade of Mauna Kea Access road in protest of the construction of the thirty-meter telescope.” In support of its argument that nonprofits are not permitted to engage in civil disobedience activity, the AG cited an IRS ruling [Rev. Rul. 75-384] that denied federal tax-exempt status to a charitable organization that sponsored protests to promote world peace with illegal actions including blocking vehicle traffic and disrupting government work and the movement of supplies.
Neither of [the AG's] reasons justifies this kind of overreach.
Contrary to the AG's assertions, there is no prohibition on a charitable organizations' participation in nonviolent protest, including acts of civil disobedience.
Although the IRS has occasionally denied tax exemption for organizations whose sole or primary activities have been to violate the law, the IRS has never revoked an organization's tax-exempt status merely because it (or its members) occasionally took part in acts of civil disobedience or constitutionally protected Free Expression. KAHEA also engages in a variety of legitimate activities that qualify it as a 501(c)(3) organization.
The suggestion that these activities are not permitted is therefore dangerous and misleading, not only to nonprofits, but also to the social change they seek.
Moreover, it is not the role of the AG to enforce IRS requirements; that is a federal responsibility.
In today's hearing on the subpoena, according to the Honolulu Star Advertiser, a Hawaii Circuit Court judge stated that he was "inclined to allow . . . the subpoena" but articulated concerns regarding the subpoena's scope; specifically, the AG's request for surveillance photos taken from ATM machines. Postponing a ruling on the motion to quash the subpoena, the judge gave the AG and KAHEA until Feburary 7, 2020, to reach an agreement about the extent to which KAHEA's financial information should be disclosed.
According to the Civil Beat article, the KAHEA subpoena isn’t the first AG subpeona related to the Mauna Kea protests. In September 2019, the AG issued a subpoena to the Office of Hawaiian Affairs for information related to that public agency's financial support of the Mauna Kea protest movement.
[For more information on the Mauna Kea protests, see here].
Wednesday, November 27, 2019
The Miami Herald reports that the nonprofit Florida Coalition Against Domestic Violence is stonewalling a state audit that was triggered by an earlier report that the group's chief executive office was paid over $761,000 for the fiscal year that ended on June 30, 2017. While that amount might not seem high for those familiar with the top salaries at hospitals and universities, it raised eyebrows both because the group income consists almost entirely of more than $51 million in government funding (that it distributes to 42 domestic violence center) and because the compensation only reached that level after pay raises totaling over $313,000 during a two-year period. Again to the latest report, the nonprofit has refused to provide the Florida Department of Child and Families with basic financial and governance documents, leading to the Department suggesting that it will end its contracts with the organization. However, for now the existing contract extends to June 2020.
In other compensation news, AZCentral (part of the USA Today Network) reports that the Chief Executive Officer of nonprofit Valleywise Health earned a total of $25.5 million in 2017, including a one-time $17 million retirement plan payment. That means that even without taking into account this one-time payment, which came from a Supplemental Executive Retirement Plan or SERP and so presumably was earned over multiple years, that still leaves annual compensation of $8.5 million. Concern about his compensation led to a split board vote on raising his base salary, even though even with the approved increase that base salary is only $685,000 annually (with the rest of the compensation presumably reflecting bonuses and other incentives).
Saturday, November 9, 2019
On November 7, New York Supreme Court Judge Saliann Scarpulla ordered President Trump to pay $2 million in resitution to charity for his breach of his fiduciary duties as an officer and director of the Trump Foundation. The link attached to ordered above is the Judge's actual order. Since this is written up a lot in other places, like here by David Fahrenthold who has been the best chronicler of the Foundation, I only provide resources here for digging deeper into the case.
To fully comprehend what has happened to the Trump Foundation, President Trump, and his children, you have to read more than the order. They all entered into a series of stipulations with the NY AG Letitia James. The stipulations spell out a series of significant admissions of wrongdoing made by President Trump and his three children who sat on the board. The press release issued by the NY AG does a nice job of summarizing all that has taken place. I recommend reading all three.
If interested in seeing all of the evidence held by the NY AG you can go to the NY Supreme Court and search in the case index for the index number of the case (451130/2018). That should take you here, which if it works would save you the time of searching the case index. More information can be found from CREW who did a FOIA search that yielded the Form 4720s and checks filed by the Foundation with the IRS.
I have written about the matter on The Conversation here. In that piece I try to grapple with whether there are any situations in history that place this occurrence in proper historical context. If you get a chance to look at that, and have thoughts about the choice, let me know what you think.
Thursday, November 7, 2019
Pennsylvania bears watching on hospitals and tax exemption.
Pennsylvania's Northumberland County Board of Assessment just denied a request on October 30 for property tax exemption for some hospitals UPMC acquired a few years ago. UPMC, headquartered in Pittsburgh in the old US Steel building, bought Susquehanna’s Sunbury and Lock Haven hospitals from for-profit Quorum Health in 2016.
Apparently no specific reason was sited for the denial. From the article:
“There was testimony during the hearing that indicated that some parcels, or portions of the parcels, were utilized for purposes that likely are not exempt. UPMC felt all of the parcels were exempt,” Mr. Garrigan wrote in an email.
“When questioned by the Board, UPMC gave an indication as to the approximate breakdown of the parcels by use, but there was little documentary evidence provided at that time to backup these percentages.”
UPMC has 30 days to appeal.
The healthcare giant recently entered into a 10 year agreement with Highmark for Highmark to be allowed to use the UPMC provider network. This came on the heels of the Pennsylvania AG bringing a complaint sounding in state charitable nonprofit law to force UPMC to enter into such a relationship with Highmark.
Thursday, September 26, 2019
Earlier this month the California Assembly passed legislation (AB 1181) to limit charitable contribution deductions for donated medical supplies that are conditioned on being used outside the United States, as well as strengthening the state's charitable solicitation laws in a variety of other ways. This legislation presumably grew out of several enforcement actions taking by the California Attorney General targeting such activities, one of which resulted in a $410,000 settlement. The bill is now on the governor's desk, where it joins the previously passed bill (SB 206) "to allow athletes at California's 58 NCAA schools the right to receive compensation for the use of their names, images and likenesses" and a bill (AB 136) to ensure that defendants in the Varsity Blues college admissions scandal are refused a deduction under state law, whether as a charitable contribution or a business expense, for any unlawful payments. Governor Gavin Newsom has until October 13th to decide whether to sign or veto each bill, along with hundreds of others currently on his desk.
Wednesday, September 25, 2019
Public details are a bit scarce, but according to press reports a three-year investigation by Minnesota Attorney General Keith Ellison has raised questions about a nonprofit's investment of nearly a $1 million in for-profit companies owned by the nonprofit's CEO. Praying Pelican Ministries started a for-profit coffee shop in 2013 in order to raise money, with the CEO as the sole shareholder of the business (even though the board had approved the investment subject to the nonprofit being a 49% owner). After investing nearly $800,000 in the business, the coffee shop was sold for $16,000, with the sales proceeds used to pay off the shop's creditors. During approximately the same time period, the nonprofit referred participants in its mission trip to a travel agency owned by - you guessed it - the CEO. The nonprofit also paid nearly $140,000 to the agency in purported reimbursements, but a later audit revealed that in fact the agency was obligated to repay this amount to the nonprofit.
In the wake of the investigation and the AG's allegations that they had violated their fiduciary duties in numerous ways, the CEO and four board members resigned earlier this year. Earlier this month the AG filed in court a stipulation and proposed order (agreed to by the nonprofit and its new leadership), which if accepted by the court would require the nonprofit to revise its policies and leadership. The "Petition for Order Approving Assurance of Discontinuance" is available here. At least at this point, no criminal charges have been filed.
Wednesday, August 14, 2019
I previously blogged about Pennsylvania Attorney General Josh Shapiro's attempt to modify consent decrees governing the relationship between the University of Pittsburgh Medical Center (UPMC) and Highmark (a health insurer and health care provider). I recently learned that days before the decrees were set to expire, UPMC and Highmark agreed to "give many Highmark insurance members in-network access to UPMC doctors for the next 10 years," access that was set to expire with the decrees. The Pittsburgh Post-Gazette news report linked to in the previous sentence notes that the Highmark CEO credits the AG with helping broker the talks that led to the agreement, and also that the AG planned to withdraw his lawsuit against UPMC. For those interested in the details of the long-running dispute involving UPMC, Highmark, and the AG's office, this news story also has a helpful timeline.
Tuesday, August 13, 2019
Here are the most recent National Rifle Association (NRA) developments:
- In July, the Attorney General for the District of Columbia issued subpoenas to both the NRA and its related charitable foundation focusing on whether the organizations violated DC's nonprofit laws. The foundation is chartered in the District of Columbia. More specifically, the AG's office said: ""We are seeking documents from these two nonprofits detailing, among other things, their financial records, payments to vendors, and payments to officers and directors." Coverage: ABC News; Washington Post.
- Earlier this month, the New York Attorney General issued subpoenas to 90 current and former NRA board members. The NRA is chartered in New York. While the AG's office did not provide any details, the subpoenas come in the wake of reports regarding financial transactions with numerous board members or entities owned by them. Coverage: CNN; N.Y. Times.
- Also earlier this month, the Washington Post reported that the NRA had considered purchasing a $6 million mansion for its chief executive officer, Wayne LaPierre. The NRA ultimately did not proceed with the purchase, but the details regarding the decisions related to the purchase are disputed by NRA officials and its former outside ad agency.
Thursday, June 20, 2019
The drip-drip of bad news about the National Rifle Association and the University of Maryland Medical System continues. For the NRA, the newest revelation was that 18 members of the NRA's 76-member board had direct or indirect financial transactions with the organization at some point during the past three years even though board members are not compensated for their service. Transactions with board members of tax-exempt nonprofit organizations are generally allowed if the terms, including the amounts paid, are reasonable in light of what the organization receives in return, and particularly if they are vetted through a conflict of interest policy (which policy the NRA has). Nevertheless, the number of board members involved and the amounts - ranging from tens thousands of dollars to in one case over $3 million in purchases - raises the question of whether the judgment of those board members might be affected by the transactions, particularly when it comes to evaluating the performance of the executives who control such transactions. As Mother Jones reports, however, the IRS is unlikely to try to revoke the tax-exempt status of the NRA even given these recent revelations. The more potent threat to the organization is instead the ongoing New York Attorney General investigation, as the NRA is incorporated in New York.
Meanwhile, similar governance issues continue to come to come to light at the University of Maryland Medical System, but with somewhat different results. These issues include longstanding financial relationships with a number of board members, including a former state Senator, and disregard for the two consecutive five-year terms limit on board service. Unlike the situation with the NRA, these revelations have also claimed a number of leadership casualties, most recently four top executives (including the system's primary lawyer) who resigned earlier this month. Given the ongoing federal and state investigations and legislative calls to force all current board members to step down, more leadership changes are probably likely.
Wednesday, June 19, 2019
New Jersey Governor Phil Murphy has reversed course, announcing last week that he will sign bill S1500 after initially vetoing it conditionally because of constitutional and policy concerns. Assuming he follows through on his commitment, any group that is tax-exempt under either section 501(c)(4) (social welfare organizations) or section 527 (political organizations) of the Internal Revenue Code that engages in certain activities will have to publicly disclose donors who contribute $10,000 or more. The triggering activities are raising or spending $3,000 or more for the purpose of "influencing or attempting to influence the outcome of any election or the nomination, election, or defeat of any person to any State or local elective public office, or the passage or defeat of any public question, legislation, or regulation, or in providing political information on any candidate or public question, legislation, or regulation." Groups that engage in these activities will also have to report details of their relevant expenditures. The bill will become law despite opposition from the New Jersey chapters of both the ACLU and American for Prosperity.
So far it appears that state-level expansions of required public disclosures by politically active nonprofits have been limited to a handful of Democratic-controlled states, although significant ones in terms of their size (California, New Jersey, and New York). It remains to be seen whether disclosure legislation introduced in many other states becomes law (see the end of this Ballotpedia News story for a nationwide update on such legislation).
Thursday, May 16, 2019
New Jersey is the latest state to compel disclosure of significant donors in the wake of the federal government's decision to eliminate reporting to the IRS by tax-exempt organizations (other than 501(c)(3)s) of their significant donors. NJ Attorney General Gurbir S. Grewal and the NJ Division of Consumer Affairs announced a new rule earlier this week that will require both charities and social welfare organizations that have to file annual reports with the Division's Charities Registration Section to include the identities of contributors who have given $5,000 or more during the year. (Like a number of states, New Jersey apparently defines "charitable organization" broadly for state registration purposes, so as to encompass not only Internal Revenue Code section 501(c)(3) organizations but also Internal Revenue Code section 501(c)(4) social welfare organizations.) According to statements accompanying the new rule, the donor information will not be subject to public disclosure. This announcement was in the wake of New Jersey and New York suing the federal government for failing to comply with Freedom of Information Act requests submitted by those states relating to that earlier decision, and New Jersey joining a lawsuit brought by Montana challenging the decision.
Interestingly, however, last week New Jersey's governor vetoed a bill (S1500) that would have compelled donor disclosure by organizations engaged in independent political expenditures, among other measures. Governor Philip D. Murphy's 20-page explanation raised both constitutional concerns with the legislation as enacted and policy concerns that the bill did not go far enough in certain respects. The constitutional concerns included ones relating to the bill's application to legislative and regulatory advocacy, not just election-related expenditures. The policy concerns includes ones related to a failure to extend pay-to-play disclosures and to require certain disclosures from recipients of economic development subsidies.
In other disclosure news, the U.S. Court of Appeals for the Ninth Circuit rejected petitions fo rehearing en banc of the earlier three-judge panel decision in Americans for Prosperity Foundation v. Becerra, turning away an as applied challenge to the California Attorney General's requiring that the foundation provide a copy of its Form 990 Schedule B (which identifies significant donors) to that office. The rejection is notable because it was over a lengthy dissent by five judges, to which the three judges on the initial panel responded.
I think it can be safely predicted that in this era of "dark money" we will continue to see state level compelled disclosure developments, and litigation in response, for the foreseeable future.
Wednesday, May 15, 2019
Details continue to emerge about the ongoing crisis at the National Rifle Association and government investigations are just starting to build up steam, so it is way too early to try to comprehensively identify nonprofit law lessons arising from this situation. That said, here are two early takes.
Boards Matter (Eventually). The NRA has a huge Board of Directors, with more than 70 members. While presumably its members are strong supporters of the NRA's agenda, they also have a legal role that gives them both access to information and credibility when making criticisms. While details about the NRA's recent problems emerged in a mid-April New Yorker story, they were given added visibility when they became the apparent basis for a leadership challenge by a faction of board members, including then-President Oliver North. That challenge failed, as did apparently earlier, quieter attempts by board members to rein in possibly problematic behavior, as explored in the New Yorker story. But that may not be the end, as the N.Y. Times reported yesterday that board member and former congressman Allen B. West has now publicly called for NRA Chief Executive Officer and Executive Vice President Wayne La Pierre to resign. One of the many board members may also have been the source of recently leaked internal memos that support many of the concerns now coming to light.
Success Does Not Excuse All Wrongdoing. Wayne LaPierre has been with the NRA since 1977, and been its head since 1991, during which time he has led the NRA to increasing prominence and influence. But despite that success, he now appears vulnerable. Indeed, in an apparent pattern that many who work with nonprofits will recognize, that success and long tenure may have led him to engage in the very transactions that could prove to be his undoing. For example, while far from the most significant questionable transaction financially or probably legally, his alleged spending of more than $200,000 for wardrobe purchases charged to an NRA vendor is, if true, a classic example of an unnecessary, self-inflicted wound (and possible excess benefit transaction for federal tax purposes). For the rank-and-file NRA member, paying him over a million dollars in compensation annually presumably can be justified by the organization's success; but then he should buy his own clothes (and who spends over $200,000 on clothes?).
With the continuing New York Attorney General, congressional, and possibly Internal Revenue Service interest, we will hopefully learn much more about how the crisis developed in the coming months. And of course this is on top of previous congressional interest in alleged Russian ties to the NRA in the time leading up to the 2016 election.
Following up on previous coverage in this space, Baltimore Mayor Catherine Pugh's nonprofit-related problems led to her resignation earlier this month in the wake of FBI and IRS agents raiding her homes and mayoral office. The issue that led to her downfall: alleged self-dealing, arising from the $500,000 purchase of a book she wrote by a nonprofit on the board of which she sat. Additional coverage: Baltimore Sun (which broke the original story); CNN; Washington Post.