Monday, June 24, 2019
As this is my first post on Nonprofit Law Prof Blog, I thought I would do an introductory post. Excited to be blogging here. My name is Philip Hackney, and I am an Associate Professor of Law at the University of Pittsburgh School of Law. I primarily teach tax law related courses and my scholarship focuses on nonprofit organizations, tax-exemption, tax law, and the IRS. You can see my scholarship here and you can see some articles I have written for more popular press here.
I worked for five years at the Office of the Chief Counsel of the IRS in Washington DC regulating the nonprofit sector. That work very much influences my research and scholarship and likely what I will blog about here. For instance, I will likely speak about stories like the Taxpayer Advocate Service ("TAS") criticizing the IRS on its new Form 1023-EZ. I note this story because in TAS's 2020 Objectives Report to Congress, TAS again criticizes the IRS's management of its tax-exempt application system. The Form 1023 EZ is a relatively new cursory form that allows small nonprofits to quickly qualify with the IRS as tax exempt organizations. The form was a response to chronic backups at the IRS for approval of routine applications for tax-exemption. TAS is not wrong about the problems raised by the adoption of Form 1023 EZ, a form that will be abused. Charities that should not get tax benefits will be approved by the IRS as a result of the cursory form. The IRS is not doing the kind of audit work that will ensure those organizations are caught. But the reality is that the IRS does not have the resources to do the oversight of the nonprofit sector to the extent many people seem to want. I don't want to get deeply into this issue here, other than to highlight a perspective that I try to bring to the table, which is that as we think about the nonprofit community it is important to be realistic about the resources we are willing to dedicate to their oversight -- not much -- and then work from there.
I will also blog about the role of nonprofits in our democracy. Values of democracy deeply inform my scholarship, and I will work to highlight the democratic role, or often lack thereof, of nonprofit entities in the US, states, and local governments. Because I believe the well-working of our nonprofit community in its democratic role is critical to the governance fabric of our nation, I think thoughtful laws and well operated oversight of the sector matters greatly. I hope to talk about that.
My wife, who is an artist, and I are deeply engaged in the arts community. I have taken an interest in art law as a result and will likely blog about art law matters as well, particularly as they intersect with nonprofits.
Look forward to interacting with this community.
Friday, May 31, 2019
I saw the following tweet today (and yes, I really should get off Twitter ....) from Phil Buchanan about an article published today on Wired.com entitled "5 Mistakes MacKenzie Bezos and other Mega-Donors Should Avoid":
Phil Buchanan (@philxbuchanan)
You may remember Phil from my Wednesday post as the current President of The Center for Effective Philanthropy. First of all, I didn't realize that Jeff Bezos was getting divorced, but that being said, apparently his ex-wife took the Gates/Buffett Giving Pledge and as a result has scads of money to give to charity. Accordingly, Mr Buchanan has some helpful advice to give to Ms. Bezos as she contemplates her philanthropy. I won't give away all five (so that you'll read his article), but here's the first few:
1. "Thinking a single, quick-fix 'innovation' will solve complicated social problems
2. "Looking for one-size-fits-all performance measures"
Read the article for 3. 4 and 5. I personally would add two more mistakes, however:
6. Not funding overhead costs, and
7. Bribing your favorite nonprofit into mission creep.
If you've bee in the nonprofit grant-making world for even five minutes, then I don't need to explain 6. I recognize it isn't sexy to pay for employee health care coverage or the light bill, but work - even charity work - does not get done by sick people in the dark. Seven is related, however - all too often I've seen charities take on large projects that monopolize their time, assets, and people to the detriment of their core mission, including diverting resources to overhead to support donor vanity projects that can't be paid out of the grant funds.
What would you all add to the list?
Wednesday, May 29, 2019
With summer here and the day-to-day craziness mostly (!) under control, I have the luxury of a few moments of just … thinking. It’s easy to get wrapped up in the text of the Code, the most recent case law, or the scandal du jour (I’m looking at you, NRA). But I rarely have the time to step back and take a wider scope on things.
At this particular moment, it is courtesy of Twitter, which seems somewhat antithetical to big thoughts (literally, given the word count), but one never knows from whence inspiration may come. In the matter of just a few days, a number of Twitter posts came across my feed that connect indirectly in my mind to a larger questions of the role of charity in a democracy.
Twitter post number 1. Nonprofit Quarterly posted an article on its website entitled “The Road Less Traveled: Establishing the Link between Nonprofit Governance and Democracy.”
This article discusses how best practices in nonprofit board governance increase the representation of the various communities served by a nonprofit. The failure to follow these best practices results in a “’democratic deficit’ in board governance- that is, an absence of democratic structures and processes.” Addressing the democratic deficit doesn’t just benefit the charity – it benefits our democracy writ large: “Wider constituent participation in nonprofit governance will not only help citizens develop civic skills and democratic values … .”
Twitter post number 2. The second Twitter post links to a Nonprofit Quarterly podcast that discusses “No White Saviors,” a movement that discusses the impact of race on hierarchy and power in the international charitable economic development space.
This links a Nonprofit Quarterly podcast that discusses “No White Saviors,” a movement that discusses the impact of race on hierarchy and power in the international charitable economic development space. “Those with power hav[e] the resources and capability to make decisions on what should the outcome should be for vulnerable populations.” Podcast at 6:42.
Twitter post number 3. The third post is an interview with Phil Buchanan of The Center for Effective Philanthropy, posted on vox.com, where he responds to criticism of that wealthy philanthropy is undemocratic (set for the more fully in his book, Giving Done Right).
In the interview, Buchanan is quoted as saying:
The structural critiques are important and they play out in our democratic politics. But in the meantime, here we are. We have significant wealth that’s been accumulated in this country. We have endowed private foundations that don’t even have a connection on the board to the original donor. These are institutions that are focused on a mission. They’re focused on the public good. I like working in the day to day, in the practical reality, where there are people with decision-making power to allocate these resources. I want to help them to do it effectively.
I think all of these pieces raise interesting views on the role of power and money and the role of the charitable sector in a democracy. At the end of the Buchanan interview, he specifically asks if we should be subsidizing all of this through the tax code, and specifically the Section 170 charitable deduction (spoiler alert: he says yes, and expand it to non-itemizers).
I’m more interested, however, in the Section 501(c)(3) implications on all of this. Since Section 501(c)(3) is the section that creates the boundaries between that which is charitable (at least, charitable in tax terms) and that which is not, does it make sense for those rules to play a role in policing this issue. One could view the 1969 passage of the private foundation excise taxes as the historical pre-cursor for this discussion, as at least part of the background of that legislation was to minimize the benefit to and the influence of the most wealthy through charitable vehicles. My thoughts aren’t fully formed on this, but I found it an interesting crossing of the Twitter streams in a very short 48 hour period. Any musings and other big thoughts are, of course, most welcome.
Friday, February 15, 2019
Ellen Aprill's Review of Hamburger's "Liberal Suppression: Section 501(c)(3) and the Taxation of Speech"
Ellen Aprill (Loyola-LA) recently posted a review of Professor Philip Hamburger's (Columbia) "Liberal Suppression: Section 501(c)(3) and the Taxation of Speech" at HistPhil.org. HistPhil, which is "a web publication on the history of the philanthropic and nonprofit sectors, with a particular emphasis on how history can shed light on contemporary philanthropic issues and practice." Prof. Hamburger's book argues that, as a constitutional law matter,
... theopolitical fears about the political speech of churches and related organizations underlay the adoption, in 1934 and 1954, of section 501(c)(3)’s speech limits. He thereby shows that the speech restrictions have been part of a broad majority assault on minority rights and that they are grossly unconstitutional.
Thursday, January 19, 2017
Haskell Murray, one of our co-conspirators over at the Business Law Prof Blog, recently wrote about a recent post by Rick Alexander, the head of Legal Policy at B Lab (of B Corp certification fame) on Benefit Corporations. Here's Prof. Murray's post:
Over at the Harvard Law School Forum on Corporate Governance and Financial Regulation, Rick Alexander has a post on benefit corporations. I plan to post some comments on Rick's post next week, when I have a bit more time, but for now, I will just bring our readers' attention to the post and include a small portion of his post below:
Benefit corporations dovetail with the movement to require corporations to act more sustainably. However, the sustainability movement often treats the symptom (irresponsible behavior), not the root cause—the focus on individual corporate financial performance. Proponents of corporate responsibility often emphasize “responsible” actions that increase share value, by protecting reputation or decreasing costs. Enlightened self-interest is an excellent idea, but it is not enough. As long as investment managers and corporate executives are rewarded for maximizing the share value of individual companies, they will have incentives to impose costs and risks on everyone else.
Personally, I would argue that part of the root cause is that corporate financial performance is not required to appropriate take into account societal externalities, such as pollution - the true root cause. Nothing is going to make a corporation be a good citizen if it doesn't want to do so, even if it could under a benefit corporation structure. But that's just me. I am really looking forward to Prof. Murray's thoughts, and will try to post them when I see them.
Thursday, July 28, 2016
A recent post by Benjamin Leff on The Surly Subgroup highlights the 50+ year ban on 501(c)(3) organizations (here, specifically churches) “intervening” in a campaign for public office. Arguments for and against the ban range from an infringement of free speech, to churches using their power to distort the electoral process. However, the main issue discussed is that although churches want to get in to court to challenge the ban, they believe the IRS won’t let them. For a compelling read on how these organizations may be granted their “day in court” and some possible reform suggestions, read the above linked post.
Wednesday, December 2, 2015
Brian Mahany (Mahany Law) posted Non-Profit Hospitals and the False Claims Act to his firm's Due Diligence (Blog):
Wednesday, February 18, 2015
One of the best resources out there for keeping track of state adoption of hybrid entities is socentlaw.com and specifically, the fantastic multi-colored map that keeps track of who has what where.
EWW (dating herself....)
Friday, August 22, 2014
For Profit Law Schools: Campos on Florida Coastal School of Law and what it says about high cost nonprofit law schools
If you have not already heard about the huge ongoing gnashing of teeth regarding the legitimacy, or lack thereof, of for-profit law schools (nevermind the questioning of law schools themselves), you should take a look at Paul Campos' August 13th article in The Atlantic entitled "The Law School Scam". Campos has a follow-up post to the article -- commenting on Florida Coastal School of Law's rather transparent PR counter-offensive lead by a person named "Mia" -- on his own blog. The point relevant to this blog though regards the extent to which the profit motive necessarily, invariably or inevitably corrupts altruism in the managment of nominally nonprofit endeavors. One might surmise that in the absence of so much government subsidized profit -- even still today -- gushing from law schools, we might have far fewer law schools perpetuating the ever increasing bubble. I almost feel as though I am passing along some really juicy explosive gossip, except that the facts are verifiable even if his conclusions are arguable.
The Atlantic article begins with a discussion of an infamous incident in which a Dean candidate was asked to get the hell off campus right in the middle of his vision talk for too insightfully addressing the conflict between profit making and charity as it relates to the impact on law school admissions:
Florida Coastal is a for-profit law school, and in his presentation to its faculty, Frakt [the Dean candidate] had catalogued disturbing trends in the world of for-profit legal education. This world is one in which schools accredited by the American Bar Association admit large numbers of severely underqualified students; these students in turn take out hundreds of millions of dollars in loans annually, much of which they will never be able to repay. Eventually, federal taxpayers will be stuck with the tab, even as the schools themselves continue to reap enormous profits. There are only a small number of for-profit law schools nationwide. But a close look at them reveals that the perverse financial incentives under which they operate are merely extreme versions of those that afflict contemporary American higher education in general. And these broader systemic dysfunctions have potentially devastating consequences for a vast number of young people—and for higher education as a whole. Florida Coastal is one of three law schools owned by the InfiLaw System, a corporate entity created in 2004 by Sterling Partners, a Chicago-based private-equity firm. InfiLaw purchased Florida Coastal in 2004, and then established Arizona Summit Law School (originally known as Phoenix School of Law) in 2005 and Charlotte School of Law in 2006.
For the deeper questions provoked by the article, you just need to read the article. I'm probably way too biased to even present the highlights. But here is one salient point regarding mainstream [i.e., nonprofit] law schools that cannot be ignored:
What, after all, is the difference between the InfiLaw schools and Michigan’s Thomas M. Cooley, or Boston’s New England Law, or Chicago’s John Marshall, or San Diego’s Thomas Jefferson? All of these law schools feature student bodies with poor academic qualifications and terrible job prospects relative to their average debt. In recent years, as law-school applications have collapsed, all of these schools have, just like the InfiLaw schools, cut their already low admissions standards. And, like Florida Coastal, Arizona Summit, and Charlotte, all of these schools now have a very high percentage of students who, given their LSAT scores, are unlikely to ever pass the bar. Ultimately, what difference does it make that none of these schools produce profit in the technical (and taxable) sense, because they are organized as nonprofits? The only real difference between for-profit and nonprofit schools is that while for-profits are run for the benefit of their owners, nonprofits are run for the benefit of the most-powerful stakeholders within those institutions.
After describing the almost religious cult-like assumptions underlying American's blind subsidization of anything labled "higher education," including law school, Campos concludes, "these assumptions enabled InfiLaw’s lucrative foray into the world of for-profit education. But they have just as surely shaped the behavior of nonprofit colleges and universities." he might have added, "all at the expense of most students whose promissory notes finance colleges and universities."
Thursday, November 28, 2013
Tuesday, October 22, 2013
With a hat tip to the TaxProf Blog, I simply must post regarding the most recent compelling and ground-breaking work done by the readers of Freakonomics. (Should H&R Block Hire Models to Increase Charitable Giving?) Freakonomics updated its readers on its fundraising campaign for Freakonomics Radio, as follows.
Your comments and e-mails were also a great window into a better understanding of what makes someone want to donate to a given cause or not. You pointed out incentives we overlooked, or overvalued, or undervalued. ... Here, for instance, is one my favorite comments, from a reader named Eric Kennedy:
[Y]ou forgot a primary reason why people donate to charity: to impress their attractive tax preparers. I’m not kidding. I’m very attractive and worked as a tax preparer for two years. I’ve seen this first-hand. I now find myself considering the impression I will make on my attractive tax preparer. The most effective way to boost nation-wide charitable giving, would be to staff H&R Block with models and encourage them to make comments about the size of people’s annual donation amounts.
I must agree with Mr. Kennedy's assessment, although I will neither confirm nor deny whether I have participated in the preparation of tax returns that contain significant charitable deductions...and that fact would, of course, have no bearing on my scholarly assessment of Mr. Kennedy’s observations in this regard.