Tuesday, September 13, 2022

NYTimes looks at Hasidic Jewish Schools in New York City

The New York Times provided an interesting, though critical, look into Yeshivas in New York City. The two points that stand out are that the children of these schools, particularly the boys, are roundly not able to pass basic competency state tests assessing learning, and that the schools are taking in lots of public dollars to accomplish this result.

The story necessarily raises the issue of what role education plays within the nonprofit sector; what role nonprofits should play in primary and secondary education in a democratic order; what role primary and secondary education ought to provide in a democratic order; and what role religion should play in shaping any of that education. I have a draft paper thinking about charter schools within that order that I will be posting soon, that confronts some of those questions. But, it does not confront the role of religion in that order.

Primary and secondary education play many roles, but the two most significant that resonate in the US conception seem to be preparing individuals to be able to be employed and support themselves and also to support a democratic order. We are not born with the ability to do either of these things and it is in all our interests to ensure the children of the country have the ability to engage in both endeavors. From the description in the article, these schools are likely failing on both counts.

And yet, the notion of freedom of religion for parents to train children to uphold the values they uphold remains strong in our nation. This comes into stark contrast though with maintaining a just political order. I think there is a lot for the nonprofit world to reflect upon in this article. Worth some thought.

From the story: "The leaders of New York’s Hasidic community have built scores of private schools to educate children in Jewish law, prayer and tradition — and to wall them off from the secular world. Offering little English and math, and virtually no science or history, they drill students relentlessly, sometimes brutally, during hours of religious lessons conducted in Yiddish.

The result, a New York Times investigation has found, is that generations of children have been systematically denied a basic education, trapping many of them in a cycle of joblessness and dependency.

Segregated by gender, the Hasidic system fails most starkly in its more than 100 schools for boys. Spread across Brooklyn and the lower Hudson Valley, the schools turn out thousands of students each year who are unprepared to navigate the outside world, helping to push poverty rates in Hasidic neighborhoods to some of the highest in New York.

The schools appear to be operating in violation of state laws that guarantee children an adequate education. Even so, The Times found, the Hasidic boys’ schools have found ways of tapping into enormous sums of government money, collecting more than $1 billion in the past four years alone."

There are many highly critical responses of this article from the Orthodox community. Here is one.

Philip Hackney

September 13, 2022 in Church and State, Current Affairs, In the News, Religion, State – Executive, State – Legislative | Permalink | Comments (0)

Friday, August 19, 2022

"Millions donated after Uvalde shooting still haven't reached victims and families"

Download (2)As appears to often be the case after a high-profile disaster or tragedy, organizers who collected funds for victims of the Uvalde school shooting are struggling with how best to distribute those funds to benefits the victims and their families. The Texas Tribune reports on the challenges relating to several different pots of money:

  • At least $16 million flowed into GoFundMe accounts and local nonprofit organizations, under the umbrella of the Uvalde Together We Rise Fund that is overseen by a 10-member committee. The committee has held two town hall meetings and is researching how best to get the funds to needy families, including how to minimize negative tax consequences for them. The Fund's website now includes a draft protocol for distribution of the amounts raised.
  • Texas Governor Greg Abbott announced an allocation of $5 million for a social services center to help grieving residents, with the first step being a temporary tent for counseling sessions. The county has also approved the purchase of a building to house the center. The governor also allocated $1.25 million to the local school district for counseling.

Lloyd Mayer

August 19, 2022 in In the News, State – Executive | Permalink | Comments (0)

"Casa Ruby bank accounts frozen as D.C. investigates nonprofit's collapse"

Logo-completo_NEW09The Washington Post reports that a District Columbia court has granted the request of the D.C. Attorney General to temporarily freeze the bank accounts of nonprofit Casa Ruby, an LGBTQ rights and support organization.  A pop-up announcement on the group's webpage says that the group is still open and all of its services are available. But the August 3rd article states that the group shut down most of its operations in July.

The attorney general's request came after an earlier Washington Post article reporting that the group's last board member had resigned in April and numerous bills, including wages owed to several employees, had not been paid. The group's founder and executive director resigned last fall, but according to these news reports maintained control over the group's funds and now is in her home country of El Salvador. The resignation followed shortly after a decision by the D.C. Department of Human Services not to renew an $850,000 grant to the nonprofit, which presenting a significant portion of the group's multi-million dollar a year budget. 

Lloyd Mayer 

August 19, 2022 in In the News, State – Executive, State – Judicial | Permalink | Comments (0)

NY Annual Charity Filings Move Online & IRS Revises Form 990-N Online Filing Process

Download Download (1)Two recent examples of nonprofit reporting moving slowly into the 21st century. First, as of September 19, 2022 the New York Attorney General's Charities Bureau will require all annual filings to be submitted online. The website provides an instructional video and an interactive online checklist for charities unfamiliar with the online submission process. Second, earlier this week the IRS announced that Form 990-N filers will need to use the IRS authentication platform to submit this form. This requires either an active IRS username or an account with ID.me.

Lloyd Mayer

August 19, 2022 in Federal – Executive, State – Executive | Permalink | Comments (0)

Thursday, July 7, 2022

Charitable Solicitation Update: New California Rules for Charitable Crowdfunding; Article on Cause-Related Marketing

DownloadCalifornia is working on the implementation of its new charitable crowdfunding law, which has an effective date of January 1, 2023. The Attorney General's office has now released proposed regulations, with comments due by July 12th. For a summary of the proposed regulations, see this Adler & Colvin blog post. For more general coverage of the law's adoption, see this For Purpose Law Group blog post.

In other solicitation developments, researchers at the University of Michigan recently published a study titled How does regulatory monitoring of cause marketing affect firm behavior and donations to charity?, International Journal of Research in Marketing (online 2022; hard copy publication pending). Here is the abstract:

Cause marketing (CM) typically involves for-profit firms donating part of their sales revenue to a charity, with the hope that this will increase their revenue. We argue that it is important for a regulator to monitor firms’ CM activities, and to assess how differences in the enforcement of CM laws impact the CM practice by firms. Our analytical model uses a Stackelberg leader–follower game that endogenizes the regulator’s decision to enforce CM. The firm then decides whether to truthfully declare or overstate the amount it contributes to charity (and if overstate: by how much). We find the following results in equilibrium under different conditions: (i) CM campaigns are a win–win–win situation – they increase profit for the firm while being truthful, generate larger donations for the charity, and generate a cause marketing surplus for the regulator, resulting in doing well while doing good, (ii) the best response of the firm is to be strategic, even when the regulator is strict with monitoring, (iii) the regulator itself decides not to monitor CM, even though it knows that this results in untruthful behavior by firms. When we endogenize the extent of overstatement, we find that the firm tends to be strategic by overstating donation percentage, whether the regulator is strict or not. As the proportion of unsophisticated consumers (who believe a firm’s claims, whether truthful or not) increases, the donation proportion decreases in general, and the overstatement level increases when the regulator is lenient and decreases when the regulator is strict. In equilibrium, the regulator is strict if the market size is large, and lenient otherwise. A survey with consumers supports key modeling assumptions regarding consumers' lack of knowledge of CM laws.

Lloyd Mayer

July 7, 2022 in State – Executive, Studies and Reports | Permalink | Comments (0)

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 (1)

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)