Tuesday, May 7, 2024

ICNL Report on Foreign Influence Registration Laws

Last week, my fellow blogger Joseph Mead posted a link to a report “Ten Major Threats to U.S. Civil Society” by the International Center for Not-For-Profit Law, which I highly recommend for anyone worried about trends in U.S. civil society. But I also wanted to mention another report issued by ICNL last month, Foreign Influence Registration Laws and Civil Society. This report is primarily focused on laws directed at monitoring, threatening, or attacking NGOs with foreign ties or funding by governments other than the United States.  But the report points out that many foreign governments “have sought to justify and defend their overbroad and restrictive foreign influence laws by pointing to similar measures in historic democracies, most notably the 1938 Foreign Agents Registration Act (FARA) in the United States.” A panel at the ABA Tax Section EO Committee meeting last week included both Doug Rutzen, the director of ICNL, and Bryson Morgan, an attorney at Caplin & Drysdale. Morgan explained how pending regulations under FARA could broaden the types of persons subject to the FARA reporting regime (which is already very broad) and further undermine U.S. civil society groups with international connections. Some of us in the nonprofit sector like to think of the U.S. as an international model for nonprofit sector laws, but of course that is only part of the story.

-Benjamin Leff

May 7, 2024 in International, Studies and Reports | Permalink | Comments (0)

Monday, February 12, 2024

Deja: Form 1023-EZ and Private Foundation Misclassifications

1517621325722Sandy Deja recently determined that a high number of Form 1023-EZ applications resulted in classification as a private foundation, likely incorrectly in many instances. Here is a description of the problem from her submission to the IRS through its Systemic Advocacy Management System:

Form 1023-EZ, meant to streamline the 501(c)(3) application process, has, instead, harmfully prolonged the process for tens of thousands of small charities. Half of 1023-EZ private foundation classifications appear to be wrong. Many of these applicants actually meet IRS guidelines for public charity status. Misclassifications mean millions of dollars in unnecessary IRS fees, missed funding opportunities, unanticipated paperwork, even loss of exempt status. In addition, misclassifications are a damper on charitable activity and a needless drain on scarce IRS resources. Form 1023-EZ, introduced in 2014, and its instructions, are to blame. Part IV of Form 1023-EZ, Foundation Classification, is oddly worded and ignores the public charity tests that specifically apply to most 1023-EZ applicants. The more detailed description of the public support tests for new charities in the EZ instructions simply does not appear in any other current IRS guidance. Providing inconsistent guidance is a violation of the taxpayer's right to be informed. The obvious solution would be to change the wording of Part IV of Form 1023-EZ and its instructions to make them consistent with tax law and with other similar IRS Forms. A more comprehensive solution would include stepped-up IRS review of Forms 1023-EZ that indicate private foundation status, as well as User Fee adjustments.

Actions Taken: If any of the IRS offices I have contacted about this issue have taken action, I am not aware of it. Although I have also alerted EO tax professionals and non-profits themselves, it is really up to the IRS to fix this. The 2,000 character limit for Form 14411 means that relevant authorities and guidance, sample language, examples, charts, links and a more complete description of actions taken have been omitted from this submission. 

And here is more information from her research:

The percentage of newly approved small 501(c)(3)s classified as private foundations immediately jumped in 2014 when Form 1023-EZ was introduced and has steadily increased. In 2013, before Form 1023-EZ, less than 5% of newly approved 501(c)(3) organizations were private foundations. . . . .

By the end of 2014, less than a year after the introduction of Form 1023-EZ, misclassified 1023-EZ users were already applying for and receiving reclassification. By the end of 2022, close to 9,000 EZ-origin private foundations (almost 20% of the 9-year total) had applied for and received reclassification, and an additional 30% had disappeared from the IRS database of charities. At the end of 2022, less than half of 1023-EZ applicants initially determined to be private foundations still had that status. In contrast, close to three quarters of applicants determined to be private foundations back in 2013, pre-1023-EZ, still had that status in late 2023.

Lloyd Mayer

February 12, 2024 in Studies and Reports | Permalink | Comments (0)

Tuesday, November 28, 2023

Some Late Night Reflections on Giving Tuesday

If you are like me, your inbox today is filled with emails from nonprofits looking for donations – Giving Tuesday has been in full swing.  I’ll admit to being somewhat cynical about Giving Tuesday.   I support the charities I support during the year and I don’t need a special day to do it.  I suppose one could see it as a day of penance for the twin orgies of commercialism known as Black Friday and Cyber Monday.  I am, however, without shame and feel no need to buy any indulgences on Giving Tuesday for my recent overconsumption.

But it would appear that I’m alone in my cynicism and that’s a good thing – no one needs curmudgeons like me grumbling about such things!   GivingTuesday.org tracks the impact of Giving Tuesday on charitable donations.   There are a number of interesting observations in the information collected in their Data Commons about giving trends, including the impact of Giving Tuesday.   According to one of their reports, Giving Tuesday enhances giving among supporters, grows existing relationships, and importantly, engages younger volunteers.

Givewp.com, citing the 2022 GivingTuesday.com study, states that

  • In 2022, donors in the United States gave $3.1 billion on Giving Tuesday, 15% more than in 2021
  • More than 20 million people gave, with 6% more donors in 2022 than in 2021
  • 82% of nonprofits that participated in Giving Tuesday tried something new
  • #GivingTuesday trends annually on social media
  • More than $1 billion of U.S. Giving Tuesday donations were contributed online

That lead me to think about a potentially tax law significant change that occurred between 2022 and 2021 – that being the sunset of the $300 above the line deduction for cash charitable gifts from the CARES Act.  It seems like that particular deduction would be beneficial to the folks that Giving Tuesday targets – smaller, younger, and online donors.  That deduction hasn’t been in effect for 2022 and 2023, but there is at least some noise about trying to bring it back.  There have been a number of bills trying to revive and maybe even increase the deduction – you can find a summary of them at the Charitable Giving Coalition website here.   The most recent bill would reinstate the deduction for 2023 and 2024 but increase the limit to 1/3 of the standard deduction.

Who knows what the future of the above the line deduction is, given that all of the tax cuts that are facing sunset will be revisited here in due time.   In a world where the increased standard deduction remains and fewer people itemize, the above the line charitable deduction has its merits, especially among younger and less wealthy donors.   That being said, Roll Call reports that the Joint Committee on Taxation estimates that the above the line charitable deduction cost $2.9 billion in 2021, which is a pretty significant chunk of change.

While we wait to see what the tax writers will do… it’s now 11 pm eastern on Giving Tuesday – there’s still time to support your favorite charity, even if you won’t get an above the line deduction for it.

Grumpily guilted into generosity, eww

November 28, 2023 in Current Affairs, Federal – Legislative, In the News, Studies and Reports | Permalink | Comments (1)

Friday, November 24, 2023

Independent Sector, Health of the U.S. Nonprofit Sector Annual Review

DownloadIndependent Sector has released its latest Annual Review of the Health of the U.S. Nonprofit Sector. Here is the overview:

Independent Sector regularly releases Health of the U.S. Nonprofit Sector reports – an evolving and growing resource of data, analysis, and recommendations about key areas powering more than 1.8 million U.S. nonprofits. Since 2020, when Independent Sector launched these reports, the focal points have included: Financial Resources, Human Capital, Governance and Trust, and Public Policy Advocacy. The reports make a broad set of measures easily accessible and present them side-by-side, so stakeholders and key decisionmakers can quickly see the most accurate snapshot of the state of civil society.

The 2023 Health of the U.S. Nonprofit Sector: Annual Review covers sector health data from 2021 through the second quarter of 2023. The report includes data from a range of sector research as well as Independent Sector’s analysis of nonprofits’ economic contributions and workforce demographics.

Lloyd Mayer

November 24, 2023 in Studies and Reports | Permalink | Comments (0)

Wednesday, November 8, 2023

NASCO's Latest Report on State Enforcement & Regulation

DownloadThe National Association of State Charity Officials (NASCO) has issued its latest Annual Report on State Enforcement and Regulation covering September 2022 thru September 2023. The report does not attempt to provide comprehensive coverage of state activity with respect to charities during this period. Instead, it "is designed to provide and highlight a sample of activities for the covered period, not to encompass all matters addressed by state charity regulators." Here is the Table of Contents:


1. Enforcement cases in key areas:

a. Deceptive Solicitations

b. Governance

c. Trusts and Estates

d. Other

2. Outreach efforts and published guidance

3. Transaction reviews

4. Regulations and legislation

The report provides numerous scenarios of alleged and proven wrongdoing relating to charities, some of which will be familiar to readers as they have been mentioned in this space. It also provides a useful, albeit anecdotal, snapshot of the many tasks of state charity officials. Those roles include pursuing misappropriation of charitable assets, enforcing registration and reporting requirements, helping parties resolve contentious governance disputes, and educating both the public and charity leaders about relevant laws and legal responsibilities.

Lloyd Mayer

November 8, 2023 in State – Executive, State – Legislative, Studies and Reports | Permalink | Comments (0)

Wednesday, October 11, 2023

IRS TEGE: People for Customer Service; AI for Enforcement

Download Download (8)The IRS recently released its Tax Exempt and Government Entities Fiscal Year 2024 Program Letter. (Past TEGE program and accomplishments letters can be found here.) I was struck by two aspects of the letter, based on a little reading between the lines. 

First, there is a continued emphasis on "[d]ramatically improv[ing] services to help taxpayers." While a bit opaque, it appears that doing so will require prioritizing the allocation of IRS employees - i.e., people - to this task. And that likely will be good news for exempt organizations and their representatives, especially given the TIGTA report released last week titled Thousands of Tax Exempt and Government Entities Taxpayers May Not Have Received Satisfactory Responses to Their Questions. The summary for that report noted:

When TE/GE taxpayer requests are unable to be resolved over the telephone, they are referred for additional action via Forms 4442, Inquiry Referral. From January 1, 2017, through May 15, 2022, the IRS may not have provided satisfactory responses to nearly 30,000 TE/GE taxpayer inquiries, including approximately 20,000 taxpayers who had to call twice and 10,000 taxpayers who had to call three or more times for the same tax return. The IRS does not track or monitor taxpayer inquiries after their questions are referred via Forms 4442.

Second, given this prioritization of people, how will the IRS fulfill its (already neglected) enforcement responsibilities in this area? The answer is it will be "smarter" - in part, by relying even more heavily on artificial intelligence tools, as indicated by these two priorities:

Collaborate with Research, Applied Analytics, and Statistics (RAAS) to continue building and refining Exempt Organizations exam case selection using advanced modeling techniques.


Continue to work with RAAS to develop an Artificial Intelligence capability to review and prioritize referrals received on Exempt Organizations.

RAAS is the part of the IRS that implements big data projects. It was formed in 2016 by the merger of the Office of Research, Analysis, and Statistics with the Office of Compliance Analytics. (See this TIGTA report on RAAS for more details.)

Lloyd Mayer

October 11, 2023 in Federal – Executive, Studies and Reports | Permalink | Comments (0)

Tuesday, August 1, 2023

IRS Exempt Organization Statistics - 2019 990 Data, 2017 UBIT Data

DownloadFor those interested in the details of Form 990 reporting, the IRS recently released two sets of data.

First, the Tax Year 2019 Form 990 aggregate data is now available at the IRS Statistics of Income Tax Stats - Charities & Other Tax-Exempt Organizations Statistics webpage. Highlights include:

  • 218,516 Form 990 returns were filed by section 501(c)(3) organizations, reporting estimated total assets of over $4.7 trillion, total liabilities of over $1.8 trillion, total revenue of over $2.4 trillion, and total expenses of almost $2.3 trillion. But only slightly under 9,000 of those returns were for organizations reporting $50 million or more in assets.
  • The number of Form 990 returns (and aggregate financial figures) were much less for other major 501(c) categories, with 11,639 returns for 501(c)(4)s, 10,085 returns for 501(c)(5)s, 19,154 returns for 501(c)(6)s, and 9,257 returns for 501(c)(7)s.
  • Form 990-EZ returns were also less for all 501(c) categories, with 85,715 returns for 501(c)(3)s.

Second, the Tax Year 2017 Form 990-T aggregate data is now available at the IRS Statistics of Income Tax Stats - Exempt Organizations' Unrelated Business Income (UBI) Tax Statistics webpage. Highlights include:

  • There were 80,711 returns filed, including almost 30,000 for traditional IRA accounts but almost all the rest by section 501(c) organizations, including 39,847 filed by 501(c)(3)s.
  • For the 501(c)(3) returns, about $10.5 billion in gross unrelated business income was reported and slightly over $10 billion in deductions, resulting in taxable income of less than $500 million (including taking deficit returns into account) and  slightly over $1.7 billion (excluding deficit returns). This resulted in total tax owed of approximately $470 million.

Lloyd Mayer

August 1, 2023 in Federal – Executive, Studies and Reports | Permalink | Comments (0)

Thursday, June 29, 2023

Kansas Passed a Law to Strengthen Enforcement of Donor Intent

This weekend, Kansas’s newly enacted donor-intent protection law will take effect (credit to Paul Streckfus at EO Tax Journal). The Philanthropy Roundtable recently published a policy primer arguing that donors have insufficient recourse under existing law when a charity violates their intent. Anyone who has taught (or taken) a nonprofit law class knows that the struggle between charities and their donors (or more often, the heirs of donors) is at the very heart of charity law. The oldest charitable trust cases are records of heirs and trustees fighting over the use of charitable funds. I’ve found that (like so many things) our intuitions about who should prevail in these battles often depend on whose use aligns best with our own philanthropic instincts and values. But many of the examples described in the Charity Roundtable primer are about simple frustration over the institution’s inability or unwillingness to use the funds effectively for the donor’s intended purpose.

In my nonprofit law class, the most important takeaway is that donor intent is best protected by well-drafted written restricted-gift agreements. In my view, existing law provides a perfectly adequate framework for enforcing well-drafted agreements, but I don’t pretend to understand the issue better than the Philanthropy Roundtable or the Kansas legislature. The Kansas law provides an explicit statutory mechanism for donors to bring a legal action to enforce the terms of their restricted gifts, but it is quite limited in its application.  First, it only applies to gifts to an endowment fund that are accompanied by written endowment agreements containing specific donor restrictions. Second, it only authorizes actions within the first forty years after the date of the agreement (so no prolonged “dead hand” control). Third, it does not permit the award of any damages to the donor or return of any donated funds to the donor. In two of the examples cited in the Philanthropy Roundtable report, the donor was seeking return of their donation. In one of them, the report described how an employee of the institution laughed when the donor requested her funds back. Under the Kansas law, the employee would feel even more certain in their laughter, given that the legislature just clarified that a return of funds is not permitted as a remedy for ignoring donor restrictions. In my view, the law should permit a wide range of possibilities with respect to donor control, since that’s the best way to encourage donations while still allowing existing institutions to use their funds effectively and well. I think existing law generally does that, but it does require a well drafted restricted gift agreement if the donor wants continuing control. In my view, the Kansas law does a pretty good job of providing a statutory mechanism for enforcing donor intent without tipping the scales too far in one direction or the other.

Benjamin Leff

June 29, 2023 in State – Legislative, Studies and Reports | Permalink | Comments (0)

Friday, May 26, 2023

2023 Global Philanthropy Tracker Reports $70 Billion in 2020 Cross-Border Philanthropy

Download (16)The Lilly Family School of Philanthropy at IUPUI has published the 2023 Global Philanthropy Tracker. Its key findings include:

In 2020, 47 countries representing 61 percent of the global population and 85 percent of global gross domestic product contributed USD 70 billion in philanthropic outflows, and USD 841 billion when adding together all four cross-border resource flows—philanthropic outflows as well as official development assistance, individual remittances, and private capital investment (see Figure 1). Philanthropic outflows represent 8 percent of the total cross-border resources.

Philanthropy proved to be resilient during the year 2020, with only a small decline of 0.5 percent from USD 71 billion in 2018. About 60 percent of the 47 countries had updated data that are directly comparable to the amount in 2018. Among this subgroup of countries, philanthropic outflows went up modestly by around 4 percent, though the change varied greatly by country.

Lloyd Mayer

May 26, 2023 in International, Studies and Reports | Permalink | Comments (0)

Friday, April 7, 2023

CIVICUS, People Power Under Attack 2022

Download (12)Last month CIVICUS issued a new report, People Power Under Attack 2022, highlighting the deterioration of civic freedoms in many countries. Here are excerpts from the press release announcing the report's release:

  • Civic freedoms are under severe attack in over half the world’s countries
  • Downgraded countries include: Russia, Myanmar, Tunisia, Guatemala and the UK
  • Top violations include: detention of protesters, attacks on the free press and a range of harassment tactics being used against activists and journalists

Civic freedoms are being curtailed and violated in a growing number of countries. The fundamental rights to freedom of expression, peaceful assembly and association have experienced a further decline, according to a new global report released today by the CIVICUS Monitor, an online research platform that tracks fundamental freedoms in 197 countries and territories.

The new report, People Power Under Attack 2022, shows that more people than ever before live in countries where state and non-state actors are routinely allowed to imprison, injure and kill people for exercising their fundamental freedoms. More than two billion people or 28 percent of the world’s population live in countries rated as ‘closed’, the worst rating a country can receive by the CIVICUS Monitor including new countries and territories: Afghanistan, Myanmar, Russia, Hong Kong and Tajikistan. In total there are 27 countries and territories with this rating.

The attacks on civil society are not limited to authoritarian regimes, the operating environment of civil society organisations and activists is becoming more restricted in democratic states as well. In some of the more established democracies, the United Kingdom and Greece, civic freedoms have also eroded. Both countries have been downgraded to ‘obstructed’.

The latest edition of the global assessment also looks at the most common restrictions to civic rights. The detention of protesters, attacks on journalists and the harassment of civil society activists are some of the most prevalent violations from 2022. Protesters were detained in over 90 countries, while harassment tactics were used to impede the work of activists, journalists and civil society organisations in over 100 countries. Disturbingly, harassment incidents, including the use of travel bans and court summons, have been reported in 60% more countries compared to 2018 levels.

* * *

The global data released today also documents a number of positive developments. 10 countries have been upgraded and the report showcases a range of country case studies where civil society has scored important victories for human rights. Among them, Chile, which has been upgraded to ‘Narrowed’ a second tier rating, where the government has championed policies to protect journalists and has taken steps to redress the repression during the mass protests of 2019.

Lloyd Mayer

April 7, 2023 in International, Studies and Reports | Permalink | Comments (0)

Friday, February 3, 2023

The 50-State Index of Charity Regulations

The Philanthropy Roundtable has prepared an impressive report in which it ranks all 50 states from least burdensome (from a regulatory standpoint) on Charities to most burdensome.  Here are snippets:

The five states with the friendliest regulatory environment toward charitable organizations are Montana, Wyoming, Nebraska, Delaware and Idaho. The five states with the most burdensome regulatory environment toward charitable organizations are Connecticut, Mississippi, New Jersey, Florida and Pennsylvania. Relating these rankings to the vibrancy of the charitable sector (as measured by the number of charities per billion dollars of GDP) provides initial perspective regarding the consequences from imposing a more burdensome regulatory environment on charitable organizations. There is, in fact, a strong correlation between the states that impose more burdensome regulatory environments and the vibrancy of the charitable sector. While more research is required, the results are an initial indication that the states imposing the most burdensome regulatory environments are dimming the vibrancy of the charitable sector.  Consequently, states should consider the benefits from streamlining state regulations and eliminating unnecessary burdens as a means for promoting a more efficient and effective charitable sector.
. . . 

  • While there is a need for regulations on the charitable sector to foster accountability and trust in charities, excessive levels
    of regulation impose a burden on charities that outweighs the benefit of the regulation. 
  • Little research has been done to examine the impact of overregulation on the charitable sector. This study is a first
    step toward gaining a better understanding of the regulatory burden imposed on charities.
  • By comparing states along five categories of charitable regulations, one can see that overregulation is correlated with
    relatively fewer charities in a state.
  • Our society and those in need depend on a thriving, vibrant charitable sector. The evidence in this study suggests excessive levels of regulation are counterproductive to fostering a positive environment for charities and those they serve.

Here is part of the overall rankings.  The entire table is available in the report.  


darryll jones

February 3, 2023 in Studies and Reports | Permalink | Comments (1)

Thursday, January 26, 2023

Give.Org Publishes 2022 Donor Trust Report

Social Trust Factor: 10 Tips to Establish Social Business Credibility | Pam  Moore Speaker, Trainer, Consultant


Give.Org published its 2022 Donor Trust Report last month.  The report provides data points from which to critique laws and rules designed to increase nonprofit transparency.  The report reminds us that the survival of the sector depends on the extent to which the sector's reputation and "halo" is maintained.  Here is the opening summary:

The 2022 Donor Trust Report marks BBB®’s Give.org (also known as BBB Wise Giving Alliance) fifth year tracking public attitudes about charity trust and giving. Every December (since December 2017) we survey more than 2,100 adults across the United States, and another 1,100 adults in Canada, to explore how the public feels, thinks, and intends to act around charity trust and generosity. In 5 years of donor trust surveys, we consistently find that there is ample space to build trust in the sector, with most participants expressing that it is essential to trust a charity before giving, but only 17-20% (depending on the year) reporting a high level of trust in charities. We know charities play a role in shaping the way donors feel toward the sector; and our surveys consistently remind us that reaching a diverse set of donors requires a deliberate strategy to connect with their preferences, language, and culture.

Since 2017, we have also explored certain special topics — including disaster relief; COVID-19; sexual harassment; charity impact; and diversity, equity, and inclusion — to help us identify opportunities to build trust or protect trust from being eroded. For example, we found that transparency and specificity in disaster relief appeals can help build trust; while red flags around sexual harassment or diversity, equity, and inclusion can fracture it. As stated in Most Trusted Brands’ 2022 Trust in Nonprofits special report, “High levels of trust put [nonprofits] in the position of needing to constantly defend their reputation. Nonprofits must take an active and consistent approach to maintain trust, while simultaneously avoiding actions that might endanger trust — not just for themselves, but for an entire sector’s reputation.”

darryll jones

January 26, 2023 in Studies and Reports | Permalink | Comments (0)

Tuesday, January 24, 2023

Is Healthcare a Public Good or Private Commodity?

Here are some interesting Gallop Poll data points suggesting, I think, that Americans consider healthcare a public good, but prefer its dispensation through the private market.  We want universal subsidization but prefer private ownership, with its profit motive and monopolistic tendencies.  This might help explain our schizoid attitude regarding healthcare tax exemption.  We implicitly accept that socialized (as in publicly-subsidized) healthcare is worthy, whilst we cringe at the idea of providing healthcare without capitalism, and often resent tax exemption for its tendency to undercut capitalists monopolies.  






darryll jones















January 24, 2023 in Studies and Reports | Permalink | Comments (0)

Friday, December 30, 2022

TIGTA Recommends Training and Procedural Changes for EO Determinations

From TIGTA's report, issued December 19, 2022:

TIGTA seal from U.S. Department of the Treasury website.gif

Why TIGTA Did This Audit

This audit was initiated at the request of 13 U.S. Senators. The overall objective of this audit was to evaluate the Tax Exempt and Government Entities Division’s oversight controls and procedures when issuing proposed adverse Internal Revenue Code (I.R.C.) § 501(c)(3) tax-exempt status determination letters.

What TIGTA Found

Determination case files were sometimes incomplete, and employees did not always document actions taken when processing proposed and final adverse determinations. Our review of all 68 proposed adverse determination case files closed in Fiscal Year 2021 identified 40 (59 percent) case files that were missing required documents or information needed to support the actions taken by EOD specialists and Quality Assurance reviewers. For example, in 18 (26 percent) of 68 cases, EOD specialists did not document their manager’s concurrence with the proposed adverse determination, as required. Due to the missing documentation, TIGTA could not always confirm that EOD specialists and Quality Assurance reviewers completed all the necessary actions to process proposed adverse determinations. In addition, EOD management does not always effectively use Quality Measurement Process results to address identified quality issues. The Quality Measurement Process evaluates work quality in four categories of accuracy and timeliness measures. Although the overall quality score for the four categories evaluated averaged 82 percent in Fiscal Year 2021, individual attributes received far less favorable ratings. For example, Fiscal Year 2021 quarterly reports consistently indicated low scores for the “Timely Actions Taken” attribute. Finally, EOD management has not established quantifiable goals for quality review results. Goals help measure how organizations perform relative to its past performance and shows the progress in management’s efforts to improve the quality of programs. EOD specialists, Quality Assurance reviewers, and managers received religious, civil, and Constitutional rights training on how to determine if an organization is a church and were participants in discussions about the Bill of Rights and the Civil Rights Act of 1964, including the freedom of religion and nondiscrimination based on religion.

What TIGTA Recommended:

TIGTA recommended that the Director, Exempt Organizations: 1) ensure that EOD specialists complete, and managers review, all required actions when processing proposed denials of tax exemption; 2) require EOD specialists to fully document discussions with taxpayers and actions taken; 3) require Quality Assurance reviewers to document that applicants did not submit a protest; 4) provide refresher training to EOD specialists and Quality Assurance reviewers; 5) ensure that actions taken to address common quality deficiencies resolve the issues; and 6) develop baseline goals for quality review scores and adjust them periodically, as needed. IRS management agreed with all six recommendations and plans to take corrective actions.

This article summarizes the report, and quotes EOD's response (the full response is included in the report):

In response to the report, Eric Slack director of employee plans at the IRS's Tax-Exempt and Government Entities division, pointed out that in fiscal year 2021, the IRS closed approximately 90,000 applications for Section 501(c)3 status, approving approximately 78,000 of them and denying only about 60 applications, while around 12,000 were closed in other ways, such as withdrawal by the applicant before a determination was made.

"We make determinations of tax-exempt status based solely on the facts, attestations and representations in the administrative file of each individual case," he wrote. "We are committed to respecting taxpayer rights in this process, including the right to be informed, to challenge the IRS's decision and be heard, and to appeal the IRS's position in an independent forum.


December 30, 2022 in Studies and Reports | Permalink | Comments (0)

Monday, December 19, 2022

Dynasty Trusts

Americans for Tax Fairness, through principal author, Bob Lord with assistance from some academic smarty pants whose names are recognizable, published an interesting report earlier this year on the persistence of Dynasty Trusts.  Here is a sample from the Executive Summary: 

Dynastic wealth has been with us since before the American Revolution. But the accumulations of wealth by ultrarich families in recent decades now exceed even those from the Gilded Age of the late 19th century. And huge family fortunes continue to pile up day after day with no end in sight. This unceasing buildup of private wealth makes our society less equal, our economy less stable and our democracy less secure. Taxes levied on the intergenerational transfer of wealth are supposed to curb this accumulation, but big loopholes in federal tax law allow it to mostly proceed unchecked. Payment of estate, gift and generation-skipping taxes (collectively known as wealth-transfer taxes) have become for all practical purposes optional for the ultrawealthy. Ultrarich families use dynasty trusts—the term for a variety of wealth-accumulating structures that remain in place for multiple generations—to ensure their fortunes cascade down to children, grandchildren and beyond undiminished by wealth-transfer taxes.  

The picture below is from a different source but it alarmingly (I guess) depicts the problem.  



I should admit that I avoid estate and gift taxation like sick man avoids a conference of anti-vaxers.  I have ever since I finished my Estate and Gift tax exam many many moons ago.  I mean, if the estate tax is supposed to preclude the concentration and amassing of generational wealth . . . well, I got bad news for us all.  Anyway, the most I can intelligently state with regard to dynasty trusts and the report is that somehow I get the feeling it has something to do with charitable giving under the Income and Estate tax systems.  So rather than completely expose my ignorance, I will just paste the Table of Contents and let the estate and gift tax geeks out there figure it out:  

Table of Contents

10     Generation-skipping Tax Exemption Creates and Inflates Dynasty Trusts
12     Valuation Discounts for Interests in Family-controlled Entities
13     Intentionally Defective Grantor Trusts (IDGTs)
16     Zeroed-out Grantor Retained Annuity Trusts
17     Irrevocable Life Insurance Trusts (ILITS) and Use of “Crummey Powers”
19     Effective Gift Tax Rate
19     Impact of Stepped-up Basis on Dynastic Wealth Accumulation
22     Estate Tax Avoidance by Dynasty Trust Assets Over the Next 30 Years
22     Extensive Exploitation of Tax Loopholes by the Ultrarich
25     Case Examples of the Use of Family Dynasty Trusts to Avoid Taxes
31     Concentration of Political Power
33     Dynastic Wealth Escapes Public Oversight or Regulation


December 19, 2022 in Studies and Reports | Permalink | Comments (0)

Charitable Giving 1992-2021


The Dorothy A. Johnson Center at Grand Valley State released an informative 30 year retrospective on charitable giving.  Philanthropy 1992-2022:  Giving Changed -- How Much, Where To, and Who From discusses and links to a good bit of data to help inform charitable giving policy.  Here is a sample:

This essay not only reminds us what things looked like in 1992, but reveals how the practices of giving, the makeup and number of institutions, and the intensity and breadth of research and teaching about philanthropy have all expanded considerably and changed in sometimes dramatic ways.  Megadonors have become much more mega, the lines between the sectors have blurred more than anyone expected, and many more academic programs have opened their doors. Still, many aspects of the field and its institutions have endured — not always for the better. Nonprofit ethics scandals remain in the news as they were 30 years ago, and we still struggle with how to address persistent social and racial inequities. However, the overriding theme here is the incredible expansion and change in these past thirty years.

Giving increased in tandem with the economy, but the mix of giving sources shifted.

According to our best annual estimate of charitable giving, in the publication Giving USA, total giving from all sources in 1992 was $124.31 billion. In 2021 (the latest year calculated), that total rose to $484.85, an increase of $360 billion over 30 years.  However, this increase is not as astonishing as it might seem because the total giving figure has continued to track closely with the size of the overall U.S. economy. Giving now is roughly 2% of the national GDP, just as it was 2% back in 1992. As the economy grew, so did giving.  What has changed is the mix of charitable sources, as shown in Table 1. The most dramatic change is in the relative amount of total giving coming from individuals versus foundations. While individuals are still the largest source, they account now for only about two-thirds of total giving — whereas they were 82% of the total 30 years ago. This relative decline is less a result of individual giving declining, and more because the share of giving coming from foundations has risen so significantly, from less than 7% in 1992 to nearly 19% of all giving today.





December 19, 2022 in Studies and Reports | Permalink | Comments (0)

Monday, December 12, 2022

Donor-Advised Funds Update: New Articles by Colinvaux and Heist et al.; NY AG Action; Fidelity Charitable Just Keeps Growing

13-colinvaux-roger-004Roger Colinvaux (Catholic University) has published Speeding Up Benefits to Charity by Reforming Gifts to Intermediaries, 63 Boston College Law Review 2621 (2022). Here is the abstract:

Charitable giving tax incentives are intended to encourage giving for public benefit. Gifts to intermediaries frustrate this goal. Presently, $1.26 trillion has accumulated in donor advised funds (DAFs) and private foundations. These are charitable intermediaries that do not benefit the public until they release their funds for public use. Congress has long recognized that intermediaries cause a "delay in benefit" problem because the tax incentive is awarded before the public benefits from the gift. Congress addressed this problem for foundations in 1969 by requiring them to pay out a minimum amount annually. Congress, however, has not addressed the problem for DAFs, and the foundation payout now has too many loopholes. The Article explains that reform of charitable intermediaries is essential to the continued viability of the charitable giving incentives. The status quo allows donors to a take a tax deduction, retain effective control over their donations indefinitely, and provides no guarantees that the public will ever benefit from tax subsidized charitable gifts. This Article responds to arguments against charitable intermediary reform and analyzes bipartisan legislation, the ACE Act, introduced to accelerate charitable giving from DAFs and foundations. The Article also considers whether community foundations and other mission-driven DAF sponsors warrant distinct legal treatment. The Article concludes that the status quo undermines generosity and perpetuates wealth, and that reform is required. This Article further concludes that, though the ACE Act is sound legislation, it should apply to existing DAF accounts and require further study of its incentives for private foundations and whether DAFs at mission-driven sponsors further their mission.

H. Daniel Heist (BYU), Benjamin F. Cummings (Utah Valley University), Megan M. Farwell, Ram Cnaan (University of Pennsylvania), and Erinn Andrews (GiveTeam) have published Tubs, tanks, and towers: Donor strategies for donor-advised funds giving, Nonprofit & Management Leadership (2022), which provides interesting information about the various ways donors use DAFs. Here is the abstract:

The increasing use of donor-advised funds (DAFs) creates challenges for nonprofit managers and fundamentally changes the way that many donors give to charity. We conducted 48 in-depth interviews with DAF donors to understand their strategies of how they give through a DAF. From the interviews, we found three distinct models of DAF giving strategies: tubs, tanks, and towers. Tub donors give quickly through a DAF, moving money in and out annually. Tank donors contribute large lump sums and grant the money away in the relatively near future. Tower donors take a calculated approach with the DAF to sustain their philanthropic activity over time. Several factors relate to these strategies, including the sources and timing of contributions, different purposes of grantmaking, tax implications, investment strategies, and family involvement. Our findings may help nonprofit managers, fundraisers, and other stakeholders to better understand the various ways donors give through DAFs.

In other news, last month the New York Attorney General filed an Assurance of Discontinuance relating to Peter Fleischmann, former chief executive office of the Foundation for Jewish Philanthropies (FJP), a donor-advised fund (DAF) sponsoring organization. According to news reports, four years ago Fleischmann resigned from his role with the charity that then managed nearly $200 million in assets. I could not find a ready link to the document - I received it from the New York AG's office - but it contains findings and relief agreed to by the AG and Fleischmann, including:

  • A disclosure by FJP of an internal investigation to the AG's office triggered the AG's inquiry.
  • Fleischmann breached his fiduciary duties in various ways, specifically facilitating a donor's award of scholarships from a fund held by FPJ to relatives of the donor (which FJP reported to the IRS as violations of section 4966 relating to DAFs and obtained repayment from the donor for) and making charitable donations in violation of the terms of other funds and claiming those donations as his personal ones for charitable contribution deduction purposes (which he has since repaid in significant part to FJP).
  • Fleischmann agreed to be permanently barred from serving in a position with fiduciary responsibilities for any New York nonprofit and has corrected the tax returns on which he claimed the improper charitable contribution deductions.

Finally, Fidelity Charitable announced that new grants are expected to surpass deposits in 2022, according to AP News, with grants expected to exceed the $10.3 billion donated in 2021. And Bloomberg Law (subscription required) reports on the details of Fidelity Charitable's latest IRS Form 990, including that of those 2021 donations hundreds of millions of dollars flowed to other DAF sponsoring organizations.

Lloyd Mayer

December 12, 2022 in In the News, Publications – Articles, State – Executive, Studies and Reports | Permalink | Comments (0)

Tuesday, November 29, 2022

Something to Think About on Giving Tuesday...

"Giving Tuesday" is drawing to a close. My iPhone has been sounding off frequently all day as several non-profits have sent me word to "remember them" on this special day. Now that this day is drawing to a close, this report caught my ears (I am visually impaired; nothing catches my eyes anymore).

Monday's NonProfit Times reported that according to a new report from the New York state Attorney General’s office, commercial fundraising firms turn over an average of 73% of funds raised to the nonprofits that retain them. However, the report states, “there is a minority of [fundraising firms that] collect fees so large that charities receive only a small fraction of the total amount donated through a campaign.”    

According to the Times,

The authors analyzed data from 658 fundraising campaigns conducted either entirely or partially during 2021 by for-profit fundraisers in New York. That’s a dip from the 718 campaigns conducted the previous year, a drop attributed to COVID-19-related restrictions. “With vaccine eligibility limited until the second quarter of the year, live fundraising events remained difficult,” report authors wrote. “Charities and fundraisers had to pivot as the pandemic ebbed and flowed.”

The Times goes on to state that the report does not break out whether potential funders were from prospect databases or lists provided by the individual nonprofit. The two types of lists often have different remittance rates. Representatives for the New York state Attorney General’s office did not return messages at deadline seeking clarification regarding whether remittance rates on these types of lists differed.

Here is some more of what the Times had to say:

On the whole, the campaigns analyzed raised more than $1.71 billion, around $248 million more than was generated in 2020, despite the drop in the number of campaigns, according to Pennies for Charity: Funding by Professional Fundraisers, the new report from New York state Attorney General Letitia James’s office. Of that, the nonprofits received just less than $1.25 billion. More than half (60%) of the money raised was generated by two donor-advised funds – Network for Good, which coordinates Facebook-based campaigns, and Eaton Vance Distributors.

The $464 million retained by fundraisers made up 27% of all gross receipts, a percentage that has held more or less steady since 2018. But remittance rates to individual nonprofits varied widely: In 42% of the campaigns analyzed, charities received less than 50% of the funds raised. And in 15%, the expenses generated by the fundraisers exceeded the revenue generated, costing these charities an aggregated $10 million.

The report included at least three other interesting findings:

  • Online funding, which had jumped 21% during 2020, continued its rise, growing an additional 9% during 2021.
  • Millennials, the generation coming into its own as funders, are responsive to peer-to-peer fundraising efforts. Nearly four in 10 (39%) have made donations via social media in support of someone they know.
  • Telemarketing use as a fundraising channel has been dropping. During 2020, 410 campaigns employed telemarketing, a figure that slipped to 401 in 2021. Part of the reason for telemarketing fundraising’s decline might be rooted in its efficacy – for the fundraisers. In 2019, 195 fundraisers retained more than 50% of the dollars collected via these campaigns. By 2021, that number had dropped to 158 fundraisers.

The report is based on the New York state database of charities and fundraising activity records. Individual campaign records include the name of the charity, name of the professional fundraiser, filing year, gross receipts, net remitted to charity, percentage remitted to charity and the amounts of uncollected pledges reported.

This might be something you want to look through as you reflect on all the money you gave away on Giving Tuesday.

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



November 29, 2022 in Current Affairs, In the News, Other, State – Executive, Studies and Reports | Permalink | Comments (0)

Tuesday, November 22, 2022

Donor Advised Funds Update: Continued Growth, Continued Scrutiny

Download (1)Donor advised funds are both continuing to grow and continuing to be subject to government and academic scrutiny, as illustrated by a new report, an Attorney General review, and a new academic article. 

First, the National Philanthropic trust issued its 2022 DAF Report. Highlights include:

  • DAF donors granted at historic levels. Grants from DAFs to qualified charities totaled an estimated $45.74 billion, representing a 28.2 percent increase compared to 2020, which itself was 28.3 percent higher than in 2019. The ten-year average rate of change for DAF grantmaking is 17.5 percent from 2011 to 2020.
  • The DAF grant payout rate was 27.3 percent, the highest grant payout rate on record. Payout has remained above 20 percent for every year on record, reflecting the consistent charitable support that DAF donors provide. The ten-year average payout rate from DAFs is 22.2 percent.
  • Other key metrics, like contributions and charitable assets, also increased at rates much higher than the ten-year average. For example, charitable assets in DAFs increased significantly as the stock market surged and donors made more contributions than ever before. Historically, periods with very strong growth in charitable assets (20 percent increases or more) are immediately followed by large increases in grantmaking.

Second, the California Attorney General issued a report on its audit of donor advised fund sponsors registered in California. (Hat tip: Bloomberg (subscription required).) Here are the "notable takeaways" from the Executive Summary:

  • The results show a growth in DAFs, with average annual growth in assets above 20 percent (Tables 3 and 4).
  • Commercial DAFs saw the most growth in dollar terms, topping $20 billion in contributions and $75 billion in year-end assets (Figures 2 and 7). The growth in commercial DAF sponsors was fueled by donations of equity securities, with equities representing between 50 to 65 percent of donations received each year, compared with the rate of equity security donations among all sponsors ranging between 34 to 38 percent (Tables 7 and 11).
  • Grant payouts by DAFs increased across sponsor types and sponsor locations, with the exception of community foundations where the payouts remained somewhat flat (Figures 13 and 14).
  • The data suggests that 20 percent of DAFs pay out less than 5 percent in a given year (Figure 30).
  • On average, 32 percent of DAFs in commercial sponsors and 42 percent of DAFs in community foundations paid out less than 5 percent (Figures 37-38).
  • DAF-to-DAF transfers accounted for 10.8 percent of all grants (Figure 23).
  • The boost in payout and fund flow rates due to DAF-to-DAF transfers was most pronounced in community foundations, with DAF-to-DAF transfers representing 17.8 percent of all grants made by community foundation DAFs (Figure 26).
  • Private foundation distributions account for 5.3 percent of all contributions received by DAFs (Figure 10). For commercial sponsors, private foundation contributions represented 3.1 percent of all contributions; for mission-based sponsors and community foundations it was higher, making up 9.8 and 12.2 percent of all contributions received, respectively (Figure 12).

Third, David I. Walker (Boston University) has posted "Donor-Advised Funds in the Wake of the Tax Cuts and Jobs Act." Here is the abstract:

Donor-advised funds (DAFs) are conduits for charitable giving that support immediate tax deductions while creating a reservoir of assets for subsequent disposition to end-use charities. The number of new DAF accounts has skyrocketed in the wake of the 2017 Tax Cuts and Jobs Act (TCJA). This Article presents evidence suggesting that bunching charitable contributions to game the TCJA-enhanced standard deduction likely motivates much of the onslaught of new DAF accounts established since 2016 and argues that the typical buncher is likely to differ from other DAF account holders in ways that matter from a policy perspective. Thus, while DAF critics have generally focused on the unproductive accumulation of assets in DAF accounts and have advanced reforms aimed at speeding up DAF payouts, this Article argues that in the context of bunchers, unproductive accumulation of assets in DAF accounts is unlikely to be a major problem. The more significant problem with DAF-facilitated bunching is that the cost to the public fisc is unlikely to be justified by incremental charitable giving. Thus, while this Article concludes that regulation targeting DAF payouts is unobjectionable, it argues that a wholly different set of reforms targeting the deductibility of charitable giving generally would be needed to address the cost of DAF-facilitated bunching under current law and under thoughtfully reformed laws involving universal charitable deductions above a floor.

Lloyd Mayer


November 22, 2022 in In the News, Publications – Articles, State – Executive, Studies and Reports | Permalink | Comments (0)

More Charity Care and Commerciality Criticisms of Tax-Exempt, Nonprofit Hospitals

DownloadAnother month, another set of criticisms of tax-exempt, nonprofit hospitals. The latest group includes a report on low levels of charity care at many hospitals, an analysis revealing that some hospitals make it difficult for financially needy patients to access charity care, and a call for removing tax exemption entirely on commerciality grounds.

First, the Kaiser Family Foundation issued a report finding that "[h]alf of hospitals reported that the cost of providing charity care to patients represented 1.4% or less of their operating expenses in 2020, though the rates vary widely from hospital to hospital." While its analysis was not limited to tax-exempt, nonprofit hospitals, it noted that almost 60 percent of community hospitals are nonprofits. Here is an excerpt from the description of the analysis:

This issue brief addresses key questions about hospital charity care programs. According to our analysis of hospital cost reports, charity care costs represented 1.4 percent or less of operating expenses at half of all hospitals in 2020, though the level of charity care varied substantially across facilities (Figure 1) (see Methods for details about our calculations). For example, while charity care costs represented 0.1 percent of operating expenses or less on the lower end of the spectrum (for 8% of hospitals), they represented 7.0 percent of operating expenses or more among a similar share of hospitals (9%). The variation in charity care costs as a percent of operating expenses likely reflects differences in hospitals’ missions and business practices; the need for charity care among patients; and federal, state, and local policy and regulation.

Second, the Wall Street Journal reports in "Hospitals Often Don’t Help Needy Patients, Even Those Who Qualify" (subscription required) that some nonprofit hospitals make it difficult for needy patients to receive financial assistance as they "put up obstacles, delay checking eligibility and sometimes press for payments that aren’t refunded even if a patient eventually gets qualified for assistance." Its findings included:

•Though hospitals have the power to prequalify low-income patients for charity care and never send a bill, about 450 nonprofit facilities—roughly 15% of the 3,100 nonprofit facilities in the Journal’s analysis of tax documents—didn’t report using the option.

•Even among the hospitals that told the IRS they do prequalify people, many spent months chasing patients for payment before checking eligibility. The parent organizations for roughly 1,000 of those facilities reported pursuing at least $2 billion in billings to patients who likely qualified for aid.

•In scripts and other training material for staff who talk to patients about bills, obtained through public-record requests to more than 100 government hospitals, the possibility of financial assistance is sometimes raised only as a last resort, or not at all.

Third and finally, Edward A. Zelinsky (Cardoza) has posted "The Commerciality of Non-Profit Hospitals Requires Them to Be Taxed: Bringing the Debate to a Conclusion," 42 Virginia Tax Review (forthcoming 2022). Here is the abstract:

It is now time to conclude our prolonged debate about the tax-exempt status of nonprofit hospitals. The contemporary nonprofit hospital is a commercial enterprise, materially indistinguishable for tax purposes from its profit-making, taxed competitor. The federal income tax and the states’ income, sales and property taxes should treat all hospitals alike, regardless of whether such hospitals are nonprofit or for-profit enterprises. In the interests of equity and efficiency, these similar institutions should be taxed similarly.

As a political matter, nonprofit hospitals will continue to defend their tax-exempt status. Like any other lucrative, vested interest, nonprofit hospitals will continue to fight hard to protect their valuable tax benefits. But, on the substantive merits, the case for taxing the contemporary nonprofit hospital is compelling, given the commerciality of today’s nonprofit hospitals. Such nonprofit hospitals are not materially distinguishable for tax purposes from their profit-making, taxed competitors.

Lloyd Mayer

November 22, 2022 in In the News, Publications – Articles, Studies and Reports | Permalink | Comments (0)