Nonprofit Law Prof Blog

Study: Household Charitable Giving Continues to Plunge

The Giving Environment: Understanding Prepandemic Trends in Charitable Giving, a new study by the Indiana University Lilly Family School of Philanthropy at IUPUI, examines giving patterns across the past two decades from five nationally representative studies and concludes that giving to charity by U.S. households has been on the decline not only since the Great Recession but since the turn of the century: One out of two American households donated to charity in 2018 compared with two out of three in 2000.

The report, based on research funded by the Bill & Melinda Gates Foundation, noted that 66.2% of American households gave charitable contributions in 2000, a figure that dropped by 17% to 49.6% in 2018, the latest year for which data is available. It is the first time that giving has dipped below 50% of U.S. households since the studies began tracking this information. 

It is also the first time since the Philanthropy Panel Study (PPS) began tracking the share of American households that donated to charity in a given year that the participation rate dropped to half.

Commenting on the study's conclusions, Una Osili, Ph.D., associate dean for research and international programs at the Lilly School, stated, “The new research offers clear evidence of a substantial decline in formal charitable giving rates prior to the unprecedented challenges of 2020.” With an eye on crowdfunding and impact investing as additional means of charitable giving, Dr. Osili further stated, “It’s also important to acknowledge the many additional ways individuals are participating in philanthropy today.”

According to a report in the NonProfitTimes which analyzed the study:

Data is not yet available to show whether the decline in participation continued in 2020. The study analyzed the latest data from the PPS, a module of the University of Michigan’s Panel Study of Income Dynamics. The study follows more than 9,000 households over time and provides the most comprehensive data available on giving trends by U.S. households.

Giving participation rates decreased for members of all racial and ethnic groups studied between 2000 and 2019. While giving to religious groups began its decline before the Great Recession in 2008-09 — 46% between 2000 and 2004 to 29% in 2018 — giving to secular causes didn’t begin to dip until after the economic downturn of 2008-09. In 2008, about 57% of households donated to secular causes, down to 52% in 2010, and a low of 42% by 2018. The decline in average amount donated to religious causes ($1,107 in 2000 to $771 in 2018) has outpaced the decline in average amount given to secular causes ($684 in 2000 to $509 in 2018).

The Times continues:

The largest drops in giving participation were found among Hispanic households, from 44% in 2000 to 25.5% in 2018, about 18.5%. During the same period, giving by Black households declined from almost 49% to less than 33% (16%) while participation by White households dropped from 71% to 58% (13%).

About one-third of the decrease in participation from 2000-16 can be directly attributed to shifts in income, wealth, and homeownership, according to the report’s authors, suggesting that factors like interpersonal trust, empathy and compassion, among others, also may play a role.

The General Social Survey (GSS), which includes questions about interpersonal trust, was another study examined for the report. It indicated that trust and giving participation rates declined simultaneously between 2002 and 2014:

The drop was more severe among Americans 30 and younger than among those older than 30. Younger Americans in 2002 reported giving participation of 84.5% with a 24.7% trust rate, compared with 78.9% and 18.6%, respectively, in 2014. Although the correlation does not mean that the decline in trust helped cause the decline in giving participation, it suggests there may be a relationship, according to researchers.

Now, that is something to think about.

Prof. Vaughn E. James, Texas Tech University School of Law

 

 

Accelerating Charitable Efforts Act, a Michigan DAFs Study, and DAF-Critical Media Pieces

The past month has seen a number of significant developments relating to donor advised funds, including the introduction of the Accelerating Charitable Efforts Act ("ACE Act") in Congress, a study of Michigan community foundation DAFs, and media criticism of various uses of DAFs.

Senators Angus King (I-Maine) and Chuck Grassley (R-Iowa) announced the introduction of the ACE Act in early June. The legislation aligned with the priorities and some of the proposals by the Initiative to Accelerate Charitable Giving. Some organizations quickly expressed strong opposition, including the Council on Foundations and the Philanthropy Roundtable. Others reserved judgment, awaiting further study and input from their members, including Independent Sector and the United Philanthropy Forum, although they joined a letter from some critics expressing concerns about the Act. Coverage: Devex; MarketWatch.

Also last month, the Council of Michigan Foundations released a study titled "Analysis of Donor Advised Funds from a Community Foundation Perspective." Here are its Key Findings:

• DAFs compose a considerably smaller percentage of endowments of Michigan community foundations compared to community foundations nationwide. The median community foundation in the United States holds roughly one in four dollars of its endowment on behalf of a DAF — compared to one in ten for Michigan’s community foundations.

• The median Michigan DAF experienced investment returns consistent with the median Michigan community foundation. DAF gains were slightly higher, and losses slightly greater, than the median community foundation’s results — suggesting that the median DAF accepts more risk with the opportunity for higher return.

• The median payout rate of all Michigan DAFs during 2017–2020 is 2% lower than the median Michigan private or community foundation. However, when only including DAFs that made a payout during a given year, the median DAF payout rate moves to 2% or more higher than the median private or community foundation payout rate.

• In any given year included in this study (2017–2020): 
  • One in ten Michigan DAFs received inbound contributions but made no outbound distributions (grants).
  • More Michigan DAFs made a distribution (more than 60%) than received an inbound contribution (roughly 40%).
  • Although an average of one in four Michigan DAFs was quiet (inactive) in any single year, across the four study years less than 10% of all Michigan DAFs were quiet in every year. These quiet DAFs hold less than 5% of total DAF assets in the state.
  • DAFs that were active in every year 2017 through 2020 — with a contribution, distribution, or both — comprised the majority of Michigan’s DAFs (59%), received nearly all of the contributions (96%), made nearly all of the distributions (88%), and held nearly all of the assets (82%).

• In 2020 (the most recent year available), just under half (43%) of Michigan’s DAFs paid out 5% or more of their balance, and almost a third (32%) paid out 9% or more.

• Looking at the type of DAF:
  • Michigan’s DAFs are nearly evenly divided in both number and total assets between endowed and spendable DAFs, with endowed DAFs holding just over 50% of all assets. However, spendable DAFs comprise nearly three-quarters of all contributions and distributions.
  • One-quarter of Michigan’s spendable DAFs distribute nearly half of their balance in any given year, and one in every ten spendable DAFs distributes almost all of the available balance (80% or more) in any given year. 

• Out of the approximately 2,600 DAFs housed at Michigan’s community foundations, only 2% were established by a private foundation. Balances, contributions, and distributions were also all in single digit percentages. Therefore, private foundation-established DAFs are rare within Michigan’s DAF universe.

• There is evidence that DAFs responded to the crises in 2020.
  • Two-thirds of all DAFs made distributions in both 2019 and 2020, with just over one-third (35%) increasing both the dollars distributed and the payout rate in 2020 compared to 2019.
  • Nearly one in five distributed dollars in 2020 came from DAFs that made no distributions during 2019.
  • The median distribution from a Michigan DAF rose from $8,500 in 2019 to $9,750 in 2020.

Finally, there have been several news stories and opinion pieces including criticism of DAFs. These included a N.Y. Times story "How Long Should It Take to Give Away Millions?",  an L.A. Times  editorial "Charitable donations are a form of influence-peddling. And they should be stopped" (use of DAFs to avoid California's legally required public disclosure of the sources for donations requested by politicians), and  a Daily Beast story "Christian Billionaires Are Funding a Push to Kill the Equality Act" (focusing on donations from the DAF sponsor National Christian Charitable Foundation).

Lloyd Mayer

New IRS Exempt Organizations Data for 2020

The IRS recently released two sets of statistical information about exempt organizations, in the most recent edition of the IRS Data Book and in spreadsheets from the Statistics of of Income program.

The recently released 2020 IRS Data Book (for the fiscal year ending 9/30/20) contains the usual high-level statistics for exempt organizations, including:

• Number of tax-exempt organizations and certain trusts (1,907,711) (Table 14), with most (1,753,824) tax-exempt organizations under section 501(c), including 1,404,170 under section 501(c)(3).

• Applications for tax-exempt status closed (95,864) (Table 12), with 85,509 approved, 94 disapproved, and 10,261 resolved in other ways (withdrawn, lacked required information, otherwise incomplete applications, etc.). Most (89,477) of the applications were under section 501(c)(3).

• Notices of intent to operate under section 501(c)(4) (3,219) (Table 13), with 2,796 acknowledged and 423 rejected (because, for example, not required as the organization filed a Form 990 series return before 7/8/16, already exempt under another IRC provision, or the IRS was unable to confirm the submitted employer identification number).

• Number of returns and other forms filed by tax-exempt organizations (1,360,719) (Table 2), down from fiscal year 2019 as were returns and other forms filed by most other types of entities, which likely reflects delayed processing of returns and other forms caused by the pandemic. Of the returns and other forms filed by tax-exempt organizations, 1,138,931 were filed electronically (Table 4).

• Examinations of tax-exempt organizations (Table 21), including
  • 1,417 Forms 990, 990-EZ, and 990-N;
  • 178 Forms 990-PF, 1041-A, 1120-POL, and 5227;
  • 427 Forms 990-T; and
  • 356 Forms 4720.

In addition, the Statistics of Income program recently released its Annual Extract of Tax-Exempt Organization Data for calendar year 2020, drawn from Form 990, Form 990-EZ, and Form 990-PF. It provides granular data from these returns; for example, the Form 990 extract has 273,972 rows (one for each employer identification number) and 220 columns.

Lloyd 

Private Schools, P.P.P. Loans, and Racial Discrimination

Historically, since private schools have not received federal funds, they have not been subject to civil rights laws, including Title VI of the Civil Rights Act of 1964 (“Title VI”), which prohibits discrimination on the basis of race, color, or national origin.  However, loans associated with the Paycheck Protection Program (“P.P.P. loans”) have changed this landscape.  The $659 billion program was intended to help, among others, nonprofits who needed assistance with making payroll by using loans backed by the Small Business Administration.  Perhaps surprisingly, in the words of The New York Times, it was private schools who “cashed in” on the P.P.P. loans.  See Private Schools Cashed in on P.P.P. Funding.

While public schools were ineligible for P.P.P. loans, private and charter schools could and did apply for loans, despite their multi-million dollar endowments.  When P.P.P. funding dissipated quickly, the Small Business Administration revised its guidelines to clarify that those with other financing options should stop submitting applications.  Yet, in order to stem the tide, additional rule tightening was required.  Minority focused lenders and watchdog organizations raised concerns about equity and loopholes in terms of the loans. 

Nevertheless, there may be a silver lining to private schools’ cashing in on P.P.P. loans.  Perhaps unknowingly, the private schools have made themselves subject to Title VI requirements by virtue of receiving federal funds.  The P.P.P. loan application specifically states that borrowers must comply with several civil rights laws, such as Title VI.  As noted above, Title VI prohibits discrimination on the basis of race, color, or national origin.  This means that private schools cannot engage in racial discrimination against employees, students, parents, or other participants.  This includes in terms of employment, admissions, enrollment, and other treatment. 

An interesting question is whether Title VI imposes prohibitions against racial discrimination not covered by section 501(c)(3).  One definite difference is that private schools who have accepted P.P.P. loans now may have to pay compensatory damages to individuals who prove intentional discrimination in lawsuits against the schools.  In addition, injunctive relief may be awarded to such individuals.  At the very least, due to the receipt of P.P.P. loans, some private schools now are subject to causes of action from individuals and families who have faced racial discrimination at their hands.  Over the years, organizations such as the ACLU have despaired that no such actions were possible, but that has now changed.

 

Khrista McCarden

Hoffman Fuller Associate Professor of Tax Law

Tulane Law School

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

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

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

• There is no evidence that the proliferation of donor advised funds has resulted in an increase in individual charitable giving as individual giving has remained largely constant as a percentage of disposable income, and is currently at the low-end of the range.

• While individual giving has remained largely constant, there has been a substantial shift in this giving toward donations to private foundations and donor-advised funds and away from direct giving to charities. Combined giving to donor-advised funds and private foundations has increased from 5% in 1991 to 28% in 2019, an increase of 460%.

• The value of assets in donor advised funds and private foundations have increased
  significantly over the past thirty years.

• Though more funds are flowing into, and growing in, private foundations and donor advised funds, there is no evidence that charities have benefitted from this trend.

• In the five-year period prior to 1991, charities received on average 94.1% of all
  individual giving. By contrast in the years 2014-2018 (the most recent years for which data is available), total donations received by charities (including grants from private foundations and donor-advised funds as well as direct giving) equaled between 71-75% of total individual giving.

• If charities had received donations at the rate of 94.1% of individual giving (the average rate that they received in the 5-year period before commercial donor-advised funds), they would have received an additional $300 billion over those 5 years.

Coverage: Chronicle of Philanthropy. 

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

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

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

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

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

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

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

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

Lloyd Mayer

CRS Reports on Temporary Nonitemizer Deduction & Increased Contribution Limits

As part of a report on Temporary Individual Tax Provisions ("Tax Extenders") released a couple of weeks ago, the Congressional Research Service discussed the temporary nonitemizer charitable contribution deduction and temporary increased limits for charitable contributions. In that discussion, CRS made two interesting points.

With respect to the nonitemizer deduction, CRS noted (page 5):

The $300 nonitemizer deduction is likely to have a limited effect on charitable contributions because of its relatively small cap. One study estimated that the induced charitable giving from the nonitemizer deduction would be $100 million, a relatively negligible effect, because most taxpayers who donate are already contributing amounts in excess of $300. [citing “New Charitable Deduction in the CARES Act, Budgetary and Distributional Analysis,” blog post, Tax Policy Center, Penn-Wharton Budget Model, March 27, 2020, https://budgetmodel.wharton.upenn.edu/issues/2020/3/27/charitable-deduction-the-cares-act.]

With respect to the increased contribution limits, CRS noted (page 6; citations omitted):

Lifting caps on the deductions for both individuals and businesses can provide an incentive for additional charitable giving. Evidence on the response of charitable giving by individuals has been widely studied with mixed results. A review of this evidence suggests that an enhanced charitable deduction is likely to increase charitable giving by less than the associated revenue loss. Lifting the limits affects a relatively small share of charitable giving, and the revenue pattern suggests that much of the initial revenue loss (77%) can be attributed to an accelerated realization of carryovers.21 With charitable giving estimated at $427.4 billion in 2018, if all of the permanent revenue loss led to an increase in charitable giving by the same amount (i.e., approximately $1 billion), additional giving would be 0.3% of expected giving prior to the current economic slowdown.

Lloyd Mayer

TIGTA: FY2019 Statistical Trends Review of the TEGE Division

The Treasury Inspector General for Tax Administration published earlier this month Fiscal Year 2019 Statistical Trends Review of the Tax Exempt and Government Entities Division. The report confirms that the Division has experienced both budget and staff reductions in recent years, although that trend started to reverse in fiscal year 2019. Here is the summary:

What TIGTA Found

The TE/GE Division is comprised of seven distinct functions: Employee Plans; Shared Services; Compliance Planning and Classification; and Exempt Organizations/Government Entities, which is comprised of the Exempt Organizations, Indian Tribal Governments, Tax-Exempt Bonds, and Federal, State, and Local (Governments)/Employment Tax functions. According to the IRS, the entities that the TE/GE Division serves employ almost 25 percent of the American workforce.

In May 2017, the TE/GE Division realigned the issue identification, planning, classification, and case delivery processes that were previously embedded within five functions into the consolidated Compliance Planning and Classification function. The reorganization has affected these five functions’ examinations units’ staffing, budget, and processes. In addition, in October 2018, the TE/GE Division established five new compliance groups, referred to as the TE/GE Compliance Unit, which in FY 2019 completed 4,863 compliance checks for three of the functions resulting in a 72 percent change rate.

New legislation often affects IRS operations and may require significant operational changes to implement it. Two new laws significantly affected the TE/GE Division’s operations during the years 2015 to 2019: the Tax Cuts and Jobs Act of 2017, and the Taxpayer First Act of 2019. In addition to legislative changes, the Federal Government had a lapse in appropriations from December 22, 2018, to January 25, 2019, that shut down most IRS operations for 35 days. As a result, the TE/GE Division experienced inventory backlogs in processing applications for tax-exempt status and timely completing compliance cases. However, IRS management stated that mitigation actions taken, such as allowing temporary overtime and detailing examination agents from one unit to another, addressed the backlogs of applications.

Over the FYs 2015 to 2019, the TE/GE Division’s budget decreased by more than $22.5 million (9 percent), although the FY 2019 budget increased by approximately $7.7 million (4 percent) over FY 2018’s appropriations. Along with the decrease in the budget, the TE/GE Division’s staffing level also decreased by 12 percent from FY 2015 to FY 2019, although hiring efforts in FY 2019 have started improving staffing levels. At the end of FY 2019, the TE/GE Division had approximately 1,500 employees, which was 2 percent of the IRS’s total staffing level of just over 78,000 employees.

What TIGTA Recommended

TIGTA made no recommendations in this report. IRS officials were provided an opportunity to review the draft report and did not provide a formal response

Lloyd Mayer

April 8th: Charitable Crowdfunding: Who Give, to What, and Why? (Lilly Family School of Philanthropy)

I am very much looking forward to participating in a presentation with Amy Sample Ward and Una Osili on new research from the Lilly Family School of Philanthropy about charitable crowdfunding. Free registration is available. Here are the details:

Charitable Crowdfunding: Who Gives, to What, and Why?

Thursday, April 8, 2021
2:00-3:15 p.m. ET
Cost: Free

Featuring:

• Amy Sample Ward, CEO, NTEN
• Lloyd Hitoshi Mayer, J.D., Associate Professor of Law, Notre Dame
• Una Osili, Ph.D., Associate Dean for Research and International Programs, IU Lilly Family School of Philanthropy

During these unprecedented times, crowdfunding has taken on a significant role in philanthropic giving and fundraising. 

New research from the Indiana University Lilly Family School of Philanthropy reveals perceptions of crowdfunding, how awareness of crowdfunding compares with giving via crowdfunding projects, what motivates donors who give this way, what they support, how they differ from other donors, and where crowdfunding fits in the philanthropic landscape.

Join the Lilly Family School of Philanthropy and NTEN for a webinar that blends research and practitioner perspectives on this timely topic. We will present research highlights, discuss trends and implications for crowdfunding for nonprofits, and field questions from participants. This opportunity was made possible with funding from Facebook.

Lloyd Mayer

DAF Debate Heats Up, New Data Emerges

Recent weeks have seen a flurry of pieces relating to changing the legal rules for donor advised funds or DAFs. Notable contributions include:

• Craig Kennedy and William Schambra published Conservatives Should Applaud — Not Fight — Efforts to Change Philanthropic Giving Rules in The Chronicle of Philanthropy, criticizing opposition to the Initiative to Accelerate Charitable Giving's proposed reforms.

• Dan Petegorsky published DAF Numbers Obscure Who’s Giving and How Much in InsidePhilanthropy, also criticizing opposition to the proposed reforms.

• Edward Zelinsky (Cardozo) published A Response to the Initiative to Accelerate Charitable Giving in Tax Notes, "agreeing with much (but not all) of its perspective and arguing that the rules applied to private foundations should also govern donor-advised funds."

At the same time, data about DAF contributions and donations continues to emerge (some from sources with a stake in the reform debate), including:

• AEI and The Philanthropy Roundtable released a new paper titled Appreciation in Donor-Advised Funds: An Analysis of Major Sponsors, describing how DAFs "have become the fastest-growing vehicle for charitable giving in recent years."

• The Community Foundation Public Awareness Initiative reported that For Every Dollar Contributed to Community Foundation DAFs in 2019, Donors Granted $1.08 in 2020, with the $6.7 billion donated by community foundation DAFs to nonprofits in 2020 representing an increase of 41 percent over 2019 donations.

• The National Philanthropic Trust published its 14th annual Donor-Advised Fund Report, reporting continued rapid growth of contributions to DAFs and donations from DAFs to charities through 2019.

• The Nonprofit Quarterly published COVID-19 and Donor-Advised Funds in 2020: What Do the Numbers Tell Us?, reporting data regarding disbursements by DAFs in 2019 and 2020.

• The Nonprofit Times reported that the largest DAF sponsor organizations reported significant increases in distributions from DAFs to charities in 2020, including a 24% increase at Fidelity Charitable, a 171% increase at the National Philanthropic Trust, and a 35% increase at Schwab Charitable.

Despite this debate and new information, it is unclear at this point whether there is any interest in Congress for changing the rules for DAFs. And the IRS is still considering comments it received in response to Notice 2017-73 relating to various issues involving DAFs.

Lloyd Mayer

Int'l Developments: Ten Cases That Shaped Charity Law in 2020, European Legal Philanthropy Environment, Global Philanthropy, and Tax Incentives for Cross-Border Giving

There have been several recent publications and reports of note from outside of the United States:

• Ten Cases that Shaped Charity and Nonprofit Law in 2020 And Ten Trends to Consider by Myles McGregor-Lowndes and Frances Hannah (both Queensland University of Technology): Based on a review of over 200 cases.

• Legal Environment for Philanthropy in Europe (2020) by Philanthropy Advocacy, a joint project of the Donors and Foundations Network in Europe (DAFNE) and the European Foundation Centre (EFC).

• Global Philanthropy: Does Institutional Context Matter for Charitable Giving? (Nonprofit and Voluntary Sector Quarterly) by Pamela Wiepking (Lilly Family School of Philanthropy), Femida Handy (University of Pennsylvania), Sohyun Park (Yonsei University), and others. Here is the abstract:

In this article, we examine whether and how the institutional context matters when understanding individuals’ giving to philanthropic organizations. We posit that both the individuals’ propensity to give and the amounts given are higher in countries with a stronger institutional context for philanthropy. We examine key factors of formal and informal institutional contexts for philanthropy at both the organizational and societal levels, including regulatory and legislative frameworks, professional standards, and social practices. Our results show that while aggregate levels of giving are higher in countries with stronger institutionalization, multilevel analyses of 118,788 individuals in 19 countries show limited support for the hypothesized relationships between institutional context and philanthropy. The findings suggest the need for better comparative data to understand the complex and dynamic influences of institutional contexts on charitable giving. This, in turn, would support the development of evidence-based practices and policies in the field of global philanthropy.

• Tax Incentives for Cross-Border Giving in an Era of Philanthropic Globalization: A Comparative Perspective (Canadian Journal of Comparative and Contemporary Law) by Natalie Silver (University of Sydney) and Renate Buijze (Erasmus University Rotterdam). Here is the abstract:

The 21st century has ushered in an era of philanthropic globalization marked by a significant rise in international charitable giving. At the same time, cross-border philanthropy has raised legitimate fiscal and regulatory concerns for government. To understand how donor countries have responded to this changed global philanthropic landscape, we use comparative tax methodology to develop a spectrum of approaches to the tax treatment of cross-border giving and apply tax policy criteria to critically evaluate the divergent approaches of Australia and the Netherlands, located at opposing ends of the spectrum. Findings from the comparative analysis reveal that in the current global environment for philanthropy there is a strong case to be made for allowing tax deductible donations to cross borders.

Lloyd Mayer

University of Southern California Study: COVID-19 Has Reduced U.S. Life Expectancy

A recent press release from the University of Southern California reveals that research conducted by the University of Southern California and Princeton University has concluded that the COVID-19 pandemic has significantly reduced life expectancy in the United States, with Black and Latinx Americans disproportionately impacted.  

Based on estimates of deaths under four scenarios — one in which the pandemic had not occurred and three that include COVID-19 mortality projections — by the Institute for Health Metrics and Evaluation, the report, Reductions in 2020 US Life Expectancy due to COVID-19 and the Disproportionate Impact on the Black and Latino Populations, found that as a result of pandemic deaths in 2020, Americans' overall life expectancy will fall 1.13 years, to 77.48 years — the single largest decline in at least forty years and the lowest number since 2003. 

The study also identified significant disparities by race, with researchers projecting that life expectancy for African Americans will fall 2.1 years, to 72.78 years; by 3.05 years, to 78.77 years, for Latinx individuals; and by 0.68 years, to 77.84 years, for white Americans.

Reporting on the projections, today's Philanthropy News Digest quotes Theresa Andrasfay, a postdoctoral fellow at the USC Leonard Davis School of Gerontology and co-author of the report as stating: "While the arrival of effective vaccines is hopeful, the U.S. is currently experiencing more daily COVID-19 deaths than at any other point in the pandemic. Because of that, and because we expect there will be long-term health and economic effects that may result in worse mortality for many years to come, we expect there will be lingering effects on life expectancy in 2021. That said, no cohort may ever experience a reduction in life expectancy of the magnitude attributed to COVID-19 in 2020."

As an African American, I dare say the result of this study does not make me too happy.

Vaughn E. James, Texas Tech University 

 

 

TIGTA On TE/GE Consolidation of Examination Case Selection and Assignment

The Treasury Inspector General for Tax Administration (TIGTA) has released a report entitled Consolidation of Examination Case Selection and Assignment in the Tax Exempt and Government Entities Division Created Benefits, but Additional Improvements Are Needed (Report Number 2021-10-005). Here are the highlights:

What TIGTA Found

The creation of the CP&C [Compliance Planning and Classification] function centralized how noncompliance issues are identified, developed, approved, classified, and monitored for all five TE/GE [Tax Exempt and Government Entities] Division functions. This reorganization changed how the TE/GE Division identifies examination projects, processes referrals, and tracks examinations results. However, because management did not develop performance metrics to measure progress towards achieving reorganization goals, TE/GE Division leadership cannot determine if the CP&C function improved the effectiveness and efficiency of identifying, planning, classifying, and monitoring examination workload.

Further, TE/GE Division management did not establish reorganization goals and outcomes, have a dedicated implementation team in place for the duration of the reorganization, involve all key stakeholders, effectively communicate with affected employees, or provide adequate project management oversight to ensure timely implementation of all necessary actions. This resulted in employee confusion and compromised the initial success of the reorganization. Finally, TIGTA’s analysis showed that the CP&C function has had mixed results reducing the number of unnecessary contacts with compliant taxpayers and identifying more productive examinations. Specifically, between Fiscal Years 2016 and 2019, the number of examinations closed without any changes favorably decreased for two of the five TE/GE functions, but increased by 36, 40, and 31 percent for the other three functions. Further, the overall number of cases closed without full examination (surveyed) favorably decreased by 5 percent, but increased by 468 percent for the Indian Tribal Government function.

The reorganization helped create additional benefits, such as reducing the potential for bias in case selection. In addition, the CP&C function implemented processing changes that decreased processing time for Exempt Organization function referrals by 37 percent, and began implementing a tracking system for all assigned inventory in September 2020.

What TIGTA Recommended

TIGTA made six recommendations, including the Director, CP&C, should develop performance metrics and explore process improvements for validating identified cases to ensure that they include the identified issues prior to assignment. In addition, the Commissioner, TE/GE Division, should determine the feasibility of reassigning resources from compliance functions to improve the efficiency of identifying, classifying, and monitoring productive examination workloads. Management agreed or partially agreed with five of the recommendations, but disagreed to explore process improvements to ensure that selected cases include identified issues prior to issuance. TIGTA believes this action could help reduce the number of assigned cases that employees close without examination.

Lloyd Mayer

GAO: Hospitals' Tax-Exempt Status

The U.S. Government Accountability Office has published Opportunities Exist to Improve Oversight of Hospital's Tax-Exempt Status. Here are the highlights of the report:

What GAO Found

Nonprofit hospitals must satisfy three sets of requirements to obtain and maintain a nonprofit tax exemption (see figure).

Requirements for Nonprofit Hospitals to Obtain and Maintain a Tax-Exemption

While PPACA established requirements to better ensure hospitals are serving their communities, the law is unclear about what community benefit activities hospitals should be engaged in to justify their tax exemption. The Internal Revenue Service (IRS) identified factors that can demonstrate community benefits, but they are not requirements. IRS does not have authority to specify activities hospitals must undertake and makes determinations based on facts and circumstances. This lack of clarity makes IRS's oversight challenging. Congress could help by adding specificity to the Internal Revenue Code (IRC).

While IRS is required to review hospitals' community benefit activities at least once every 3 years, it does not have a well-documented process to ensure that those activities are being reviewed. IRS referred almost 1,000 hospitals to its audit division for potential PPACA violations from 2015 through 2019. However, IRS could not identify if any of these referrals related to community benefits. GAO's analysis of IRS data identified 30 hospitals that reported no spending on community benefits in 2016, indicating potential noncompliance with providing community benefits. A well-documented process, such as clear instructions for addressing community benefits in the PPACA reviews or risk-based methods for selecting cases, would help IRS ensure it is effectively reviewing hospitals' community benefit activities.

Further, according to IRS officials, hospitals with little to no community benefit expenses would indicate potential noncompliance. However, IRS was unable to provide evidence that it conducts reviews related to hospitals' community benefits because it does not have codes to track such audits.

Why GAO Did This Study

Slightly more than half of community hospitals in the United States are private, nonprofit organizations. IRS and the Department of the Treasury have recognized the promotion of health as a charitable purpose and have specified that nonprofit hospitals are eligible for a tax exemption. IRS has further stated that these hospitals can demonstrate their charitable purpose by providing services that benefit their communities as a whole.

In 2010, Congress and the President enacted PPACA, which established additional requirements for tax-exempt hospitals to meet to maintain their tax exemption.

GAO was asked to review IRS's implementation of requirements for tax-exempt hospitals. This report assesses IRS's (1) oversight of how tax-exempt hospitals provide community benefits, and (2) enforcement of PPACA requirements related to tax-exempt hospitals.

What GAO Recommends

GAO is making one matter for congressional consideration to specify in the IRC what services and activities Congress considers sufficient community benefit. GAO is also making four recommendations to IRS, including to establish a well-documented process to ensure hospitals' community benefit activities are being reviewed, and to create codes to track audit activity related to hospitals' community benefit activities. IRS agreed with GAO's recommendations.

Lloyd Mayer

Independent Sector: Health of the U.S. Nonprofit Sector

Independent Sector has published a report titled Health of the U.S. Nonprofit Sector (free sign-up required to access).  Here is the Snapshot of the report's findings provided by IS:

• Nonprofits make up 5.5% of Gross Domestic Product (GDP)
• In 2019, Americans gave $450 billion to charity, but the number of donors continued a downward trend, declining by 3%
• Nonprofits make up 7% of total workforce and 10% of private workforce
• 59% of U.S. public trust nonprofits to do what is right
• Voters contacted by nonprofits turn out at rates 11 percentage points higher than comparable voters
• 7% of nonprofits are estimated to close due to the pandemic and almost 1 million nonprofit jobs have been lost

Lloyd Mayer

DAFs: Surge in Giving Amid Concerns, Proposals for Change at Federal & State Levels, Maybe New Regs Soon

There has been a lot of news recently relating to the quickly growing universe of donor-advised funds. A recent analysis by the Chronicle of Philanthropy reports that eight of the nation's largest community foundations have seen giving from DAFs they oversee increase by 42% from March to April of this year. And a recent study by the Lilly Family School of Philanthropy (pictured)  finds that seven of ten nonprofits surveyed have received DAF grants, even as many nonprofit leaders expressed concerns relating to seeking and processing DAF gifts, especially relating to communicating with donors who give through a DAF.

Not surprisingly, the growth and spread of DAFs continues to attract proposals for increasing oversight of and rules for them. Last month the Chronicle of Philanthropy reported that billionaire John Arnold and law professor Ray Madoff have joined forces as part of their Initiative to Accelerate Charitable Giving to propose a set of federal tax law changes that would, among other goals, accelerate giving from DAFs. Push back was quick, including from the Philanthropy Roundtable.

At the same time, proposals related to DAFs are also being made at the state level. For example, members of the California legislature continue to pursue possible DAF-related bills, as detailed by Gene Takagi earlier this year. And a recent attempt in California to pass a bill (AB 2936) that would have established a state-law category of DAF sponsoring organizations failed in August, according to CalNonprofits. In Minnesota, a new report by the Minnesota Council of Nonprofits recommends that state law there be changed to "require charitable trusts transferring funds to a donor advised fund (DAF) to include in their annual trust filing with the office of the attorney general an itemized list of all grants and contributions made or approved for future payment during the year from that DAF."

Regardless of whether any of these proposals advance, we do know that Treasury is working on regulations relating to DAFs. As tweeted by Gene Takagi, Cindy Lott said at the NAAG/NASCO conference to expect some sort of DAF regulations in the next few months.

Finally, the Stanford Law School Policy Lab on Donor Advised Funds published Are Donor Advised Funds Good for Nonprofits? in the Stanford Social Innovation Review (SSIR). That article follows an earlier SSIR podcast on How Nonprofits Are Leveraging Donor-Advised Funds.

Lloyd Mayer

COVID-19, Donations & Grants: Donations Up and Restrictions from Foundations Down

A recent report indicates that donors are increasing their giving in response to the challenges of 2020, including the pandemic. The Association of Fundraising Professionals' Fundraising Effectiveness Project reports that charitable giving in the first half of 2020 increased by 7.5% over the first half of 2019, a sharp increase after a decline for the first quarter of 2020 as compared to the first quarter of 2019. The number of donors also increased, by 7.2%, with an increase of 12.6% in new donors offsetting a decline in new retained donors. Coverage: Chronicle of Philanthropy (subscription required).

And according to a recent report from the Center for Effective Philanthropy, a survey of 236 foundations found that 66 percent had loosened or eliminated restrictions on existing grants since the pandemic began. A majority of respondents also reported that since the pandemic began they have reduced what is asked of grantees, made new grants as unrestricted as possible, and/or contributed to emergency funds. Coverage: Chronicle of Philanthropy (subscription required); The NonProfit Times.

Lloyd Mayer

Nonprofits & Politics: Dark Money and Disclosure, FEC Chairman and the Johnson Amendment

In the final lap for the 2020 general election, there have been three notable recent developments when it comes to nonprofits in politics and particularly their receipt of "dark money."

First, in CREW v. FEC the U.S. Court of Appeals for the D.C. Circuit affirmed a district court decision that struck down the FEC's narrow interpretation of a statute relating to public disclosure of contributor information when the recipient organization makes independent expenditures, as defined by federal election law. The FEC had taken the position that the statute only required disclosure if a contribution was earmarked to support a particular independent expenditure. The court concluded that this position contradicted the plain terms of the statute, which at a minimum required disclosure if a contribution was made to generally support independent expenditures. However, the court did not resolve whether the statute could be interpreted by the FEC to only require disclosure of contributions with this general intent or instead required disclosure of all contributions (above a modest threshold set by the statute) given to an organization that makes independent  expenditures. For further analysis, see the FEC summary. For coverage, see Politico. This ruling may be especially important as the use of so-called dark money increases on both sides of the aisle.

Second, the states of New Jersey and New York quietly ended their lawsuit against the Department of Treasury seeking documents relating to the Revenue Procedure (2018-38), which initially eliminated reporting of information about significant contributors to the IRS for tax-exempt organizations other than section 501(c)(3) and 527s. That Revenue Procedure was struck down by a federal district court and eventually replaced by regulations. According to Tax Notes, the parties filed a stipulation of voluntary dismissal that provides the states are satisfied Treasury and the IRS have produced the documents requested.

Third and finally, the Washington Post reports the FEC Chairman said during an interview earlier this week that a 2017 executive order freed churches to endorse political candidates. This was in the context of criticizing Catholic church leaders for admonishing priests who appear to do exactly that. He apparently acknowledged that the so-called Johnson Amendment, which prohibits section 501(c)(3) organizations, including churches, from supporting or opposing any candidate for elected office, is still good law, but asserted that it was unlikely to be enforced. Regardless of your views regarding the wisdom or even constitutionality of the Johnson Amendment, it is a bit shocking to hear a public official and lawyer say it is okay to break the law because it probably won't be enforced against you. (Not to mention the executive order he relies upon does not actually prohibit such enforcement.)

Lloyd Mayer

Foundation Leaders Admit to Seeking to Influence Public Policy Through Grant Making

According to a study of more than 200 grant makers released by the Center for Effective Philanthropy on Wednesday, nine in 10 foundation leaders say their foundations seek to influence public policy through their grant making and other activities. Not only that, but almost 75% of those foundations have increased their policy efforts during the past three years, most frequently at the state and local levels.

Foundation leaders apparently find nothing wrong with the practice. The study relates that "These efforts are not new, but have increased in recent years." Moreover, "most foundation leaders view efforts to influence public policy as an important way to achieve their goals."

The study published a sample of views held by some foundation leaders:

•     "Good public policy helps our grants go further, and bad public policy undermines our grant making."
•     "Public policy can have significantly more impact on the issues we care about than our grant dollars alone can."
•     "One cannot be serious about, for example, the health of the environment and ignore the importance of policy action on       climate change."

The report maintains that "The primary way foundations pursue their policy agenda is through grant making. Almost three-fourths of foundations that engage in policy work support grantees’ policy efforts."

Yet, the survey found that many foundation leaders run into internal resistance to their policy work. According to the report, "Foundation leaders face some common challenges, particularly when it comes to building board support."

Only 45 percent of leaders said their boards were "completely supportive" of policy efforts, 50 percent said their boards were "somewhat supportive," and 5 percent said their boards were "not supportive."

Of course, we know that private foundations face some limits on their advocacy. For example, they are prohibited from lobbying directly on legislation unless the bill addresses the way foundations operate. Also, they cannot support candidates for public office.

Vaughn E. James

Nonprofits Won't Survive Unless the Federal Government Helps More Medium-Sized Groups

Writing in today's Chronicle of Philanthropy, Susan N. Dreyfus and John MacIntosh opine that during the current COVID-19 crisis and its aftermath, many medium-sized nonprofit organizations will not survive unless the federal government provides them more much-needed support. Dreyfus is CEO of the Alliance for Strong Families and Communities; MacIntosh is managing partner of SeaChange Capital Partners, an organization that helps nonprofits facing complex financial challenges. In their thought-provoking article in today's Chronicle, they argue that while

[n]onprofits of all kinds provide critical help to communities across the United States, . . . it is the medium-sized ones that make a critical difference — those with at least 500 employees. Their workers operate food pantries, and homeless and domestic-violence shelters. They manage and staff residential facilities for young people with mental illnesses. They offer in-home and residential services for older Americans and people with disabilities. During the Covid-19 pandemic, their work is more urgent than ever.

Yet, the authors state, even as these organizations face various challenges -- challenges as daunting as those faced by their smaller counterparts -- they "are not receiving the government support they need to survive." For example, the "federal Paycheck Protection Program excludes nonprofits with more that 500 employees from obtaining the forgivable loans that would allow them to retain and compensate their employees and continue to deliver essential services during this public-health crisis."

What, then, can we do? As the article points out, at "a time when many nonprofits are at a breaking point, we [cannot] afford to leave those with more than 500 employees out of support programs that are keeping smaller organizations afloat."

According to the article,

A new analysis of New York City’s larger nonprofits found that under normal circumstances, most have just two weeks of cash on hand. Without immediate assistance, the report projects that some won’t survive through May and that few, if any, will be in a position to continue services during the Covid-19 crisis and its aftermath. Most of these organizations lack meaningful endowments and have limited access to credit. Their operating margins are razor thin (an average of 1 percent), even before taking into account the reduction in revenue and increase in expenses associated with the pandemic. Most importantly, their philanthropy, which covers less than 5 percent of expenses, cannot make up for a reduction in funding and contracts during the health crisis.

The article continues:

This situation is not unique to New York. A 2018 report on the financial stability of community-based human-services organizations found that 40 percent of the larger nonprofits had less than one month of cash reserves. Those providing housing and shelter-related services faced significantly greater financial stress.

Critics may be quick to argue that the challenges confronting these nonprofits are the result of their own inefficiency and poor management. Not so, argue Dreyfus and MacIntosh. They specifically state that:

The challenges confronting these nonprofits are not the result of inefficiency or poor management. Most government funding and philanthropy traditionally does not cover the full cost of providing services. Government contracts for essential services also create cash-flow problems since, unlike with grants, payments are not made until after the work is completed and can be subject to long and unpredictable delays. Cash, as a consequence, is an ongoing issue. But unlike large for-profits, these organizations do not have access to capital markets, cannot easily unlock illiquid assets, and are unable to use bankruptcy to restructure while continuing to deliver services. Any increase in costs, reduction in revenue, or delay in cash receipts could put some of them permanently over the edge.

So just what is the solution? The authors call for Congressional action: 

The Cares Act, which established the Paycheck Protection Program, does include larger nonprofits in the economic stabilization funding (now known as the Main Street Program), but fails to provide guidance or loan forgiveness for these organizations. 

Nonprofits with more than 500 employees must be able to access capital and receive the same loan forgiveness as smaller nonprofits. This will require changes from Congress in the next stimulus bill. It is unclear whether nonprofits will be competing for the same funds out of the Federal Reserve as corporations under the Main Street Program. For this reason, nonprofits will need a dedicated pool of funds so they are not placed in line behind for-profits to access vital dollars.

A new bill, scheduled to be introduced this week by Rep. Joyce Beatty, an Ohio Democrat, titled the Help Charities Protect Communities Act, would provide some relief by introducing a lending program that includes loan forgiveness for nonprofit organizations with 500 or more employees.

A coalition of more than 200 national nonprofits have outlined these and other priorities in an appeal to lawmakers to recognize the impact and vital importance of larger nonprofit organizations that are continuing to provide for their communities over the course of this pandemic. The Cares Act was an important first step, but we must do more during this unprecedented crisis to sustain the organizations that do so much for the health, well-being, and safety of America’s families.

For the sake of the nonprofits and the many people that they help, I hope that Congress finds a way to fund these medium-sized nonprofit organizations both now and in the aftermath of the current COVID-19 crisis.

Vaughn E. James

 

 

 

Coronavirus Nonprofit Law Initial Roundup: CARES Act; Extended Deadlines

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.

Lloyd Mayer