Saturday, May 21, 2022
The Minnesota Star Tribune reports that a state court judge has order the removal of one of the trustees for the Otto Bremer Trust, but has also refused the Minnesota Attorney General's request to remove two other trustees. The judge also held the trustees acted properly by considering whether sell the bank Bremer Financial (commonly known as Bremer Bank). The story provides a copy of the 103-page opinion.
I have not had a chance to review the opinion - busy grading exams this week - but here is a helpful analysis from the law firm of Nilan Johnson Lewis.
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
It 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.
Wednesday, April 13, 2022
As reported in numerous media outlets, the New York trial court hearing New York Attorney General Letitia James' lawsuit against the National Rifle Association and four of its current and former officers has dismissed the AG's attempt to dissolve the NRA. At the same time, the court sustained most of the remaining claims based on alleged violations under New York state law. Here is the court's summary of its decision (footnote omitted):
The Attorney General’s claims to dissolve the NRA are dismissed. Her allegations concern primarily private harm to the NRA and its members and donors, which if proven can be addressed by the targeted, less intrusive relief she seeks through other claims in her Complaint. The Complaint does not allege that any financial misconduct benefited the NRA, or that the NRA exists primarily to carry out such activity, or that the NRA is incapable of continuing its legitimate activities on behalf of its millions of members. In short, the Complaint does not allege the type of public harm that is the legal linchpin for imposing the “corporate death penalty.” Moreover, dissolving the NRA could impinge, at least indirectly, on the free speech and assembly rights of its millions of members. While that alone would not preclude statutory dissolution if circumstances otherwise clearly warranted it, the Court believes it is a relevant factor that counsels against State-imposed dissolution, which should be the last option, not the first.
The Attorney General’s remaining claims against the NRA and the Individual Defendants for violations of the Not-For-Profit Corporations Law (“N-PCL”), the Estates Powers and Trusts Law (“EPTL”), and the Executive Law are sustained. Two other claims – common law unjust enrichment and violation of the Prudent Management of Institutional Funds Act, which seek essentially the same financial relief as other claims – are dismissed on statutory grounds.
Wednesday, February 23, 2022
In a rare court opinion involving a fiscal sponsorship arrangement, MobilizeGreen, Inc. v. Community Foundation (Jan. 27, 2022), the District of Columbia Court of Appeals affirmed summary judgment in favor of a fiscal sponsor facing a lawsuit from a dissatisfied nonprofit. MobilizeGreen alleged that fiscal sponsor Community Foundation breached the terms of a fiscal sponsorship agreement by failing to transfer the fiscal sponsorship to a substitute. MobilizeGreen also alleged that the Community Foundation breached a fiduciary duty the Foundation owed to MobilizeGreen with respect to the management of funds received from the U.S. Forest Service.
Agreeing with the trial court that had granted summary judgment in favor of the Community Foundation, the appellate court concluded that the Community Foundation did not breach its contractual obligations to MobilizeGreen, Inc. and did not assume any fiduciary obligations to MobilizeGreen, even assuming that it could have done so. More specifically, both courts found it was the contractual responsibility of MobilizeGreen, not the Community Foundation, to transfer the fiscal sponsorship to a third party and so its failure for a period of time to seek consent for such a transfer from the U.S. Forest Service was its responsibility. The appellate court also found that the parties' obligations to each other were fully set forth in the fiscal sponsorship agreement and no extra-contractural fiduciary duties existed.
Sunday, January 9, 2022
The litigation involving the NRA and the NRA Foundation continues its slow march without any recent major public developments. But in its latest IRS Form 990 (see page 46 of the 67-page filing, which provides Supplemental Information for Schedule L) the NRA acknowledged new excessive benefits paid to CEO Wayne LaPierre, the Wall Street Journal reports. The article says these include $44,000 in private jet flights, and notes that the NRA is investigating other transactions. And a detailed Open Secrets report shows how funds flowed between the NRA's section 501(c)(3) affiliates and its non-charitable entities. And I recently learned, thanks to the EO Tax Journal, that there is a donor class action suit pending in federal court against the NRA that is being tracked by NRA Watch. So lots to keep the NRA's lawyers busy for the foreseeable future.
Friday, September 24, 2021
Hawaii Supreme Court: "KAHEA's advocacy could be totally legal and still jeopardize its eligibility for 501(c)(3) status" under the public policy exception.
Interesting, but very problematic, decision out of the Supreme Court of Hawai'i largely upholding the Attorney General's subpoena of bank records from a charity. KAHEA: The Hawai‘ian Environmental Alliance, "advocate[s] for the proper stewardship of our resources and for social responsibility by promoting cultural understanding and environmental justice." KAHEA created the "Aloha ‘Āina Support Fund" which “prioritizes frontline logistical support for non-violent direct actions taken to protect Mauna Kea from further industrial development.” After around 30 protesters apparently affiliated in some way with KAHEA (the court doesn't discuss except to emphasize that the Fund paid for bail for some of the protesters) blocked a road to a construction site, the Attorney General issued sweeping subpoenas of bank records from the organization. The Court suggests that AG's true motive seems to be dislike for KAHEA's advocacy agenda. KAHEA was able to get the scope of the subpoenas narrowed at both the trial level and in the Supreme Court on the grounds that they were unreasonable, but Court upheld the demand for information about how expenditures made by the Aloha ‘Āina Support Fund.
The Supreme Court' rejects KAHEA's claim that the subpoena was improperly retaliatory for KAHEA's advocacy activities. The Court seems to agree that a subpoena is an adverse action that triggers First Amendment:
KAHEA's opposition to development on Mauna Kea falls squarely within the heartland of the First Amendment's protections. We also agree with KAHEA that the prospect of an administrative subpoena seeking extensive banking records is an adverse action that would chill a person of ordinary firmness from exercising First Amendment rights.
The Court explains:
The State AG's investigation is premised on the notion that KAHEA's financial support for direct action opposing development on Mauna Kea may disqualify it from 501(c)(3) status. Nothing about this premise contradicts or runs counter to First Amendment principles.The federal tax exemption for charitable organizations is effectively a taxpayer-funded subsidy for organizations that serve some public benefit. As the Supreme Court explained in Bob Jones Univ. v. United States, 461 U.S. 574 (1983):
When the Government grants exemptions or allows deductions all taxpayers are affected; the very fact of the exemption or deduction for the donor means that other taxpayers can be said to be indirect and vicarious “donors.” Charitable exemptions are justified on the basis that the exempt entity confers a public benefit ....
Id. at 591. One corollary of the “public benefit principle” is that to qualify for the exemption, an organization must have a charitable purpose “ ‘consistent with local laws and public policy’.”
The State AG's characterization of its investigation as probing whether KAHEA has “an illegal purpose” is thus misleading because its use of the word “illegal” suggests as a necessary premise some unlawfulness on KAHEA's part. To the contrary, KAHEA's advocacy could be totally legal and still jeopardize its eligibility for 501(c)(3) status.
The State AG has represented that it is not investigating whether KAHEA has done anything illegal; it is investigating whether KAHEA serves a public benefit such that all U.S. taxpayers – a group that may include supporters of development on Mauna Kea – ought to be KAHEA's “vicarious donors.” KAHEA could have an “illegal purpose” without having done anything illegal. As such – and given IRS Revenue Ruling 75-384 and the record here – the notion that KAHEA's support for “direct action” on Mauna Kea might impact its eligibility for § 501(c)(3) status is not so unsound that it betrays retaliatory animus.
Friday, September 3, 2021
University of Louisville Settles Legal Dispute with ex-President for $800,000 Paid by Insurance Company
The Associated Press and The Courier Journal report that afters years of litigation and spending more than $6 million in taxpayer funds, the University of Louisville and its affiliated foundation have agreed to resolve their legal dispute with ex-President James Ramsey for $800,000 paid under the foundation's directors and officers insurance policy. President Ramsey served for 14 years, but his tenure ended in turmoil after allegations arose relating to improper spending by both the university and the foundation, including allegedly excessive compensation paid to Ramsey and his then chief of staff. The original complaint filed by the University and the foundation can be found here.
An earlier news report stated that the IRS was auditing the foundation, presumably based at least in part on the public allegations of wrongdoing. The most recent report states that the foundation has released its tax claims against Ramsey as part of the settlement. But it is unclear to me how that agreement could prevent the IRS from imposing self-dealing or other excise tax penalties, if it chooses to do so.
Sunday, June 27, 2021
In a 2000 EO CPE article entitled Private Schools, the Service stated, “private schools have long been of concern to the Service.” As stated therein, the Service’s determinations of whether private schools qualify for exemption under IRC 501(c)(3) were addressed in many of the CPE texts from 1979 through 1989. In Private Schools, the Service provided an important historical review, a discussion on the requirements of Rev. Proc. 75-50, 1975-2 C.B. 587, and a summary of the various filing requirements that apply to private schools.
In recounting the history of this problem, the CPE article notes the background and current status of an injunction (still in effect) that requires the Service to deny tax-exempt status to racially discriminatory private schools in Mississippi. The injunction resulted from a 1970 class action filed to prevent the Service from recognizing the tax-exempt status of or allowing IRC 170 deductions to private schools that engage in racial discrimination against black students. See Green v. Connally, 330 F. Supp. 1150 (D. D.C. 1971), aff'd sub nom., Coit v. Green, 404 U.S. 997 (1971). It is interesting to examine the injunction in place for Mississippi in considering how to handle the systemic problem of racially discriminatory private schools today. The CPE article states the following regarding Mississippi private schools:
These so-called “Paragraph (1) Schools” must demonstrate that they have adopted and published a nondiscriminatory policy. They must also provide certain statistical and other information to the Service to establish that they are operated in a nondiscriminatory manner. Most importantly, they must overcome an inference of discrimination against blacks.
As of now, the injunction from Green only applies to Mississippi schools. Clearly, Green provides a model for how to implement the restriction against private schools’ engaging in racial discrimination. The focus on “statistical” information is really the key. As we all know, numbers do not lie. If private schools were free and open to all, the student body at private schools would not be 90% or more white. The same is true regarding the bleak number of black teachers at private schools. The injunction from Green could cure some of the prevalent and pervasive problems of racial discrimination in private schools throughout the South.
Hoffman Fuller Associate Professor of Tax Law
Tulane Law School
Thursday, April 22, 2021
Yesterday's NonProfitTimes reported that the rapid conviction by a criminal court jury in Minneapolis of former police officer Derek Chauvin in the death of George Floyd last year brought swift reactions from leaders across the nonprofit sector. According to the Times, the leaders not only backed the verdict, but many also voiced support for the George Floyd Justice in Policing Act of 2021 pending in Congress which would put federal law behind blocking tactics such as no-knock warrants and chokeholds when detaining a suspect.
Among the nonprofit leaders issuing statements in favor of the verdict were: Jody Levison-Johnson, president and CEO of The Alliance for Strong Families and Communities/Council on Accreditation; Tim Delaney, President & CEO of the National Council of Nonprofits; Daniel J. Cardinali, president and CEO, The Independent Sector; Derrick Johnson, President & CEO, The NAACP; Jason Williamson, deputy director of the ACLU’s Criminal Law Reform Project; and Matthew Melmed, Executive Director, ZERO TO THREE.
Among the many statements issued and comments made, this paragraph from the statement issued by The Alliance for Strong Families is noteworthy:
This verdict reflects the fact that our national reckoning on systemic racism in America is long overdue. Watching the Derek Chauvin trial unfold has been difficult for all Americans, and for people of color who have lost another father, mother, son, or daughter at the hands of law enforcement, this tragedy, played out daily on our television screens, has been especially hard to bear. Systemic racism and implicit bias are infused across too many of the systems that should support people, resulting too often in harm to those they are meant to protect. While we recognize the work that has taken place thus far to expand equity, diversity and inclusion, we must continue to build on it, and acknowledge that the road ahead of us is long, and that true systemic change is needed and required. We hope this verdict puts us on a path toward bringing about that needed change. …”
This hope lives deep within my heart.
Vaughn E. James, Professor of Law, Texas Tech University
Thursday, March 11, 2021
Distinguishing between the activities of for-profit and nonprofit organizations that have business dealings with one another can be challenging for tax authorities when determining tax liability. The Michigan court of appeals recently fought its way through such a thicket in determining whether Dexter Wellness Center, a nonprofit organization in the state, fell afoul of a state statute imposing a lessee-user tax on nonprofits that lease their premises to for-profit organizations. The City of Dexter, where the DWC is located, sought to tax the organization under this law on the grounds that a for-profit management company was given control of the Wellness Center’s operations, thereby nullifying the charitable purpose behind the Center. The state’s court of appeals has affirmed the decision by the Michigan tax tribunal that, in truth, the for-profit’s role is more akin to that of a paid agent: since the nonprofit entity retained ultimate control over what went on at the wellness center, it retains its tax-exempt status.
For more information, see the Law360 article written on the matter by Asha Glover at https://www.law360.com/tax-authority/articles/1361863
David Brennen, Professor of Law at the University of Kentucky
Tuesday, November 17, 2020
With the fading but still heated allegations about the 2020 election came at least two legal issues for Internal Revenue Code section 501(c)(3) charities seeking to be involved in the post-election litigation. One issue is to what extent charities can be involved in that litigation and related public debate without engaging in political campaign intervention. The Bolder Advocacy Program at the Aliiance for Justice provides helpful guidance on this point. But the other, perhaps more surprising issue, was whether 501(c)(3) Project Veritas may have put its tax-exempt status at risk during its attempts to find evidence of voter fraud. Fellow blogger Sam Brunson unpacks this issue over at The Surly Subgroup, concluding that if Project Veritas broke the law by helping and encouraging perjury by a Pennsylvania postal worker it may indeed have placed its tax-exempt status at risk.
But the bigger issue for most nonprofits is how the election may directly affect them or the positions they support. Before the election, the Chronicle of Philanthropy noted that the announced Biden tax plan "would steer aid to the poor but could deter some wealthy donors from giving." And in the wake of the election, the Chronicle of Philanthropy has collected a roundup of stories about how it is likely to affect philanthropy more generally. The consensus appears to be that incremental change is likely, with charities supporting more progressive policies cautiously optimistic but expecting a lot of hard work ahead.
UPDATE: The Chronicle of Philanthropy also just published an article with this headline: "Biden Transition Team Signals Big Role for Nonprofits Throughout Government." While that article is behind a paywall, the NonProfit Times has a list of over 40 nonprofit leaders that are among the 257 members of Biden's Agency Review Teams.
Friday, September 4, 2020
On September 4, 2002, the Pennsylvania Orphan's Court issued a temporary restraining order prohibiting the sale of some of the investments of Hershey School. Hershey School was founded 110 years ago by Milton and Catherine Hershey of Hershey Chocolate fame with a $60 Million trust. The endowment currently stands in excess of $12 Billion. The school provides free education and room and board to children of low-income families; the average family income of children enrolled at the school is $21,000.
As of 2002, the vast majority of the School's endowment was invested in stock in Hershey foods. In fact, the school controlled 77% of the food conglomerate's shares. In the interest of diversifying the investment, the board of directors of the School sought to sell a large portion of its stock in the Hershey Foods. The Pennsylvania Attorney General filed suit, seeking to stop the sale, pointing to "adverse economic and social impact against the public interest if a sale of Hershey Foods Corporation takes place, particularly in its effect on employees of the Corporation and the community of Derry Township."
On September 4, 2002, a judge enjoined the sale. The judge rejected the School's interest in diversifying its assets, concluding that the School did not have any legal obligation to diversify assets. The judge further rejected the School's argument that delay of the sale would cause significant harm. Finding that the Attorney General's asserted harm was significant, and the School did not justify a need for the sale, the sale should not take place while litigation proceeded.
The School filed an appeal, but in vain. The Commonwealth Court left the injunction in place, reasoning:
The Trust argues that the Attorney General has no authority to prevent an otherwise lawful disposition of trust assets under the guise of protecting the public. This underlying legal issue, while important, is not the focus of our review. Rather we must review the record to determine whether the trial court had the "apparently reasonable grounds" required to support its decision. A review of the record and Judge Morgan's opinion does not immediately convince us no apparently reasonable grounds exist to support the order as one that restores the status quo, prevents the immediate and irreparable harm that would result if the Trust proceeded with a sale of its controlling interest in Hershey Foods before the issues raised by the parties are resolved, and prevents a greater injury than what might result if the injunction were denied.
The sale did not go through, and the trustees of the School were removed. Evelyn Brody’s article covers this case and its implications in depth. As Professor Brody notes, local leaders were outraged with the sale, but thrilled with the Attorney General’s intervention. Among the best quotes from community leaders:
"I don't see why a town should be ruined so underprivileged kids can be privileged."
"Our cash cow is safe; we're feeling really great… But there's still a lot of interest in getting rid of the Hershey trustees for ever trying this in the first place."
Tuesday, August 25, 2020
On August 6th, New York attorney general Letitia James filed suit to dissolve the National Rifle Association, a powerful nonprofit quartered in New York. A 501(c)(4) tax-exempt organization, the NRA has stood for the protection of American second amendment rights since 1871: today, its leadership stands accused of seriously abusing organizational coffers and fraudulently concealing their actions. Attorney general James alleges in her complaint that the NRA at large instituted a culture of backroom dealing and illegal behavior which has resulted in the complete waste of millions of dollars in assets. As a tax-exempt charitable corporation, the NRA is required to use its resources to serve its members’ interests and advance its mission. James further asserts that the NRA’s internal policing mechanisms and boards routinely failed to put a stop to this illegal behavior, which is part of the reason why the attorney general now calls for complete dissolution of the organization.
In addition to attacking the organization at large, attorney general James lists in her complaint four individuals in the NRA’s leadership: the organization’s executive vice president, former treasurer/CFO, former chief of staff, and general counsel. James’ complaint includes an impressive amount of evidence indicating that these men channeled colossal sums of NRA resources into lavishing benefits on themselves and those closest to them. If successful, the attorney general’s suit will serve as a powerful reminder that no nonprofit organization, no matter how venerable its history may be, is above the fiduciary duties it owes to its members or its reporting duties to federal and state governments alike.
By David A. Brennen, Professor of Law at the University of Kentucky
For the attorney general's press release see:
Monday, August 17, 2020
On August 6, 2020, the New York Attorney General Letitia James filed a complaint against the NRA seeking restitution from officers and directors, removal of officers and directors, and the dissolution of the nonprofit organized in New York in 1871. While it looks like few think the suit for restitution and removal wrong, many are criticizing the AG for bringing the dissolution action.
I think she was right to bring the dissolution action, but I doubt a court will grant it, and I think that is all fine.
The AP provided a good rundown of the case and immediate reactions.
Last year when leadership in the NRA was in disarray and widely predicting that the misuse of the nonprofit by its officers and directors could lead to its dissolution, I wrote that this was highly unlikely:
"At the same time, I think it’s possible that the New York authorities investigating the group might remove officers and members of its 76-member board of directors. There is even a slight possibility, as NRA CEO Wayne LaPierre warned in a fundraising letter, that New York authorities could cause the NRA “to shut down forever.” But I doubt it."
Ruth Marcus has questioned the NY AG.
The NRA has filed a lawsuit challenging the AG action on many grounds including first amendment grounds, defamation, and procedural grounds trying to nullify the dissolution action. Asher Stoker has a nice tweet thread explaining why the procedural effort was unlikely to work. The NY AG amended its complaint to comply with the strict requirements of filing a dissolution.
The AG lays out the basis for dissolution on page 138-39 of the complaint:
- Under N-PCL § 112(a)(5), the Attorney General is authorized to maintain an action or special proceeding to dissolve a corporation under Article 11 (Judicial dissolution).
- Under N-PCL § 1101(a)(2), the Attorney General may bring an action seeking the dissolution of a charitable corporation when “the corporation has exceeded the authority conferred upon it by law, or … has carried on, conducted or transacted its business in a persistently fraudulent or illegal manner, or by the abuse of its powers contrary to public policy of the state has become liable to be dissolved.”
Here is the N-PCL.
Many question the AG's partiality because she is a Democrat and so vocally stated she would investigate the NRA during her campaign, and called it a terrorist organization.
I encourage everyone to read the complaint. When you read the allegations of a long running, substantial, and extensive fraud on the members of the NRA, I am left wondering when the AG may use the dissolution provision that is in New York nonprofit law, if she does not use it now.
Importantly, and I think interestingly for the process, the New York statute states that the AG “may” bring a dissolution action under these circumstances. But, the judge then still has to decide.
N-CPL 1109 tells the judge what to take into consideration. It says:
(a) In an action or special proceeding under this article if, in the court's discretion, it shall appear that the corporation should be dissolved, it shall make a judgment or final order dissolving the corporation.
(b) In making its decision, the court shall take into consideration the following criteria:
(1) In an action brought by the attorney-general, the interest of the public is of paramount importance.
(2) In a special proceeding brought by directors or members, the benefit to the members of a dissolution is of paramount importance.
(c) If the judgment or final order shall provide for a dissolution of the corporation, the court may, in its discretion, provide therein for the distribution of the property of the corporation to those entitled thereto according to their respective rights. Any property of the corporation described in subparagraph one of paragraph (c) of section 1002-a (Carrying out the plan of dissolution and distribution of assets) shall be distributed in accordance with that section.
It seems to me that the appropriate way for this process to play out is for the AG to bring the dissolution action. She should present the evidence for that claim. It may be that the power structure associated with what we consider the NRA today is so impossibly entangled with the wrongdoers that it would be impossible for the NRA to be reformed to actually further the mission of the NRA. If that is the case, dissolution is the answer. I am just skeptical that this is the answer.
Though I do not believe in the same ideological beliefs that the NRA seeks to further, I do believe a robust defense of the Second Amendment should be a part of American life. I think the large membership is entitled to an organization that honestly and fairly furthers that mission. I believe we are better off in a world where the folks that believe in that right have good representation. Because of that, I find it hard to believe it will be impossible to reform the entity with that substantial membership in mind. That said, I think it possible the AG could prove her case. I think she should be allowed the respect to bring that forward. I think we will be better for it, including especially those who are conservatives. AG James is insisting on a rule of law. We should all be grateful to her for that commitment.
I shared my general thoughts with BBC World Tonight on the day the complaint was filed. You can listen to those starting at about 27:45 in on this link.
Many have wondered whether the NRA can just move out of New York to avoid the problem. The NY AG has the direct answer by tweet. No.
It is also worth watching the DC AG complaint against the NRA Foundation.
If you want a deep and rich understanding of the matter of the NRA I highly recommend the Gangster Capitalism podcast on the NRA.
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.
Monday, March 2, 2020
Happy March! To start my week here at the Nonprofit Law Prof Blog, I'm going to do some shameless self-promotion. I recently posted God Is My Roommate? Tax Exemptions for Parsonages Yesterday, Today, and (if Constitutional) Tomorrow to SSRN. I'll copy the abstract below, but a little non-abstract information first:
I wrote this in response to the Seventh Circuit's decision in Gaylor v. Mnuchin. In that case, the court held that section 107(2), which allows "ministers of the gospel" to receive a tax-free housing allowance, did not violate the Establishment Clause. It based its ruling on two tests: the Lemon test and, in the alternative, what it called the "historical significance test." The second of these tests, it said, essentially provides that if something was accepted at the time of the Framers and has continuously been accepted since, it doesn't violate the Establishment Clause.
The big problem? Well, the income tax hasn't been around nearly that long. The court held that the property tax exemption for parsonages had no substantive difference (n.b.: the two differ substantially, both substantively and constitutionally), and instead looked at that. Or, rather, looked at a caricature of the history of property tax exemptions for parsonages.
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.
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.
Friday, March 29, 2019
As the Washington Post details, the end of the Mueller investigation is far from the end of law enforcement actions relating to President Trump. Among those investigations are several tied to nonprofit organizations, specifically the continuing litigation in New York relating to the Trump Foundation and investigations into the President's inaugural committee.
Turning first to the inaugural committee, in late February the District of Columbia Attorney General's office subpoenaed the committee for documents relating to its finances according to several media reports (CNN; NY Times; Politico; Wall Street Journal; Washington Post). This followed subpoenas on the same topic from the New Jersey Attorney General's Office and from the U.S. Attorney's Office for the South District of New York, both earlier that month. The latter subpoena identified a number of possible federal crimes under investigation, including conspiracy against the United States, mail and wire fraud, money laundering, and accepting contributions from foreign nations and straw donors. The DC and NJ subpoenas are more focused on nonprofit-related matters, such as possible private benefit and whether the committee complied with laws relating to soliciting contributions.
As for the Trump Foundation litigation in New York, Courthouse News Service reports that New York Attorney General Letitia James requested judgment against the Foundation, Donald J. Trump, Donald J. Trump Jr., Ivanka Trump, and Eric F. Trump for $2.8 million in restitution and $5.6 million in penalties, as well as injunctive relief. The filing, technically a Reply Memorandum of Law in Further Support of the Verified Petition, argues that the evidence provided by the Attorney General has not been challenged by the respondents or countered by any admissible evidence provided by them, and that it demonstrates breach of fiduciary duties, wasting of charitable assets, and improper use of the foundation for political purposes. Hat tip: Nonprofit Quarterly.
Wednesday, December 19, 2018
I previously mentioned California Attorney General Xavier Becerra's cease and desist orders against three charities for allegedly overvaluing donated pharmaceuticals they received. Now Jim Ulvog, CPA at the Nonprofit Update blog has obtained the numerous and lengthy court filings in this case and begun reviewing them. So far he has posted some preliminary thoughts and also some details relating to discovery disputes. Apparently the three defendant charities have seriously lawyered up (ten attorneys named so far) and also hired impressive (and presumably expensive) expert witnesses. At last report (on December 4th), the case was in its sixth day of hearings out of fifteen scheduled days before an Administrative Law Judge. It will be interesting to see if it results in a public decision or instead a set of quiet settlements, with both sides claiming victory.