Friday, January 21, 2022
Interesting new article by Putnam Barber, Meghan Farwell, and Brian Galle entitled Does Mandatory Disclosure Matter? The Case of Nonprofit Fundraising:
The abstract: "Do donors seek out potentially adverse information about organizations making fundraising appeals? Do they react when it is readily available? Do they draw negative inferences when critical information is not available? To answer these questions, we consider previously unexamined large-scale natural experiments involving U.S. charitable organizations—tax-exempt organizations that file Internal Revenue Service (IRS) Form 990. Using standard difference-in-differences designs, we find that donors penalize organizations with high fundraising costs when there is mandatory disclosure or involuntary disclosure by a third-party reporter. Organizations with lower fundraising costs fundraise more successfully in the presence of these disclosures. The contrast with donors’ behavior when such information is not available suggests that donors do not draw correct inferences when potentially consequential information is not disclosed. Disclose-on-request requirements, in contrast, apparently do not have any significant impact on donors’ or organizations’ behavior. We then sketch implications for the regulation of donations to charities and their modern cousins, such as crowdfunding and social enterprise organizations."
Thursday, January 20, 2022
Think readers will be interested in the report. It is described as follows: "Philanthropy and Digital Civil Society: Blueprint is an annual industry forecast about the ways we use private resources for public benefit in the digital age. Each year, the Blueprint provides an overview of the current landscape, points to big ideas that matter, and directs your attention to horizons where you can expect some important breakthroughs in the coming year."
‘This year’s Blueprint asks us to consider that many perceived “impossibilities” – think of the major transformations we need to solve our biggest challenges – are indeed possible, and how digital civil society and independent philanthropy can help make them a reality,’ said Bernholz, Senior Research Scholar at the Stanford Center on Philanthropy and Civil Society (Stanford PACS) and Director of its Digital Civil Society Lab.
‘We are in a threshold moment, and civil society, rooted in collective purpose and shared values, has clear opportunities to lead in creating new and better pathways forward.’
Wednesday, January 19, 2022
In Houston, some nonprofits including Houston Endowment and Kinder Foundation are teaming up to invest about $20 million in getting a new nonprofit newsroom to cover the area.
From the story: "The Houston Endowment and Kinder are each pitching in $7.5 million, according to Stern. Meanwhile, Arnold Ventures, the philanthropic investment fund backed by billionaires Laura and John Arnold, and the journalism funder Knight Foundation are giving $4 million and $250,000, respectively, she said.
"The funders say the newsroom will be financially sustained through donations, memberships and sponsorship revenue. Stern estimates about 40 staffers might be on board when the newsroom launches, but she notes the size will be dependent on how many people the management team eventually decide to hire."
Chicago nonproft Chicago Public Media which runs the local NPR affiliate WBEZ in Chicago is acquiring the Chicago Sun Times and will be holding it in a subsidiary nonprofit corporation.
From the story: "According to the two organizations, the Sun-Times would join WBEZ as a not-for-profit subsidiary of Chicago Public Media.
The Chicago Sun-Times would get its own non-profit board, with Moog getting a seat, as well as current CPM board directors Adrienne King of Bain & Company and Lerry Knox of Sovereign Infrastructure Group. The board would also include Kristen Mack of the John D. and Catherine T. MacArthur Foundation and Aretae Ortiz Wyler, who is the chief operating officer of The Atlantic, as independent board members."
Reps. Michael Waltz (R-Fla.) and Jennifer Wexton (D-Va.) introduced a measure today intended to revoke the International Olympic Committee's exempt status in the United States.
From Politico: "Waltz and Wexton’s legislation, dubbed the Irresponsible Olympic Collaboration Act, specifically targets the IOC’s status as a 501c(4) tax-exempt organization by revoking that privilege for any international “multi-sport” organization that has revenues of more than $100 million." Wexton argues that social welfare organizations ought not host sporting events in China with ongoing genocide.
Have not found the text of the proposed legislation yet. However, you can see a resolution introduced on the issue back in December here. Be interested to see it, as the Politico story seems to suggest the bill was written neutrally yet would appear to apply to only one organization.
Update: Here is the link to the proposed bill. H/t to Sam Brunson
Tuesday, January 18, 2022
Senator Wyden, chair of the Senate Finance Committee, announced recently that the committee would begin an investigation into Opportunity Zones. The announcement begins:
"Senate Finance Committee Chair Ron Wyden, D-Ore., today launched an investigation into the Opportunity Zone Program and whether it has delivered on Republican promises to create jobs and drive investment in low-income communities, rather than just create a loophole for wealthy investors to avoid paying taxes.
In letters to SkyBridge Capital, Baker Tilly US, LLP, Cresset Partners, LLC, Hatteras Sky, PTM Partners, LLC, Related Group, Shopoff Realty Investments, Wyden wrote, “I have long been concerned that the Opportunity Zone program may permit wealthy investors another opportunity to avoid billions of dollars in taxes without meaningfully benefitting the distressed communities the program was intended to help. A report released by the Government Accountability Office (GAO) heightened my concern about the effects of the Opportunity Zone program. The GAO report notes that representatives of several Opportunity Funds indicated that they would have proceeded with projects in what are now designated zones without the tax incentives provided by the Opportunity Zone program…Currently, there are no safeguards or transparency measures in place to ensure taxpayers are not simply subsidizing high-end real estate investments by billionaires without demonstrating the benefit they are providing to low income-communities they claim to help.”
Article: The Advocacy Universe: A Methodology to Identify Politically Active 501(C)(4) Organizations
Interesting new article by authors Margaret A. Post, Elizabeth T. Boris, and Carol L. Stimmel describing a methodology for researching dark money entitled: The Advocacy Universe: A Methodology to Identify Politically Active 501(c)(4) Organizations.
The abstract states: "This article provides a framework that defines politically active 501(c)(4)s organizations and describes a methodology for identifying them among more than 80,000 social welfare organizations. We estimate that approximately 15% of (c)(4)s likely pursue advocacy or political action, while most are engaged in unrelated activities. Understanding the distinctive features of the social welfare sector and the politically engaged organizations within it are essential tasks for nonprofit scholars, yet the methodological and empirical challenges are complex and significant. To date, there has been no systematic study of the nature and efficacy of these organizations. We create a multistage methodology that allows researchers to identify politically active (c)(4)s and to investigate subgroups focused on different policy issues and with different member groups. This article summarizes how we identify organizations and strategies needed to reveal whether an organization is engaged in political activities. We explain the approach we took and the challenges we encountered."
Monday, January 17, 2022
New Article: Who’s Afraid of Bob Jones?: 'Fundamental National Public Policy' and Critical Race Theory in a Delicate Democracy
Professor Lynn Lu has a new interesting article forthcoming in CUNY L. Rev. looking at the broader impact of Bob Jones all these years later entitled Who's Afraid of Bob Jones?: 'Fundamental National Policy' and Critical Race theory in a Delicate Democracy. Here is the abstract:
In Summer of 2021, Republican legislators across the United States introduced a host of bills to prohibit government funding for schools or agencies that teach critical race theory (“CRT”), described by the American Association of Law Schools not as a single doctrine but a set of “frameworks” to “explain and illustrate how structural racism produces racial inequity within our social, economic, political, legal, and educational systems[,] even absent individual racist intent.” Characterizing such an explicitly race-conscious analysis of legal and social institutions as “divisive,” opponents of CRT, such as former Vice President Mike Pence, labeled it “nothing short of state-sponsored and state-sanctioned racism.”
The political campaign to “Stop CRT,” as articulated by strategist Christopher Rufo, seeks to redirect the time-honored civil-rights strategy of defunding racially discriminatory social institutions for use against race-conscious efforts to remedy the ongoing disparate racial, economic, and other social effects perpetuated by the same institutions. The movement to Stop CRT thus seeks to freeze civil rights progress where it stood decades ago, as when the Supreme Court acknowledged a “fundamental national public policy” against racial segregation in its 1983 decision in the notorious case of Bob Jones University v. United States, while leaving unresolved vital questions about whether and how to allocate public resources affirmatively to foster diversity, equity, inclusion, and accessibility in democratic society.
In Bob Jones, the Court upheld the federal taxation of private schools that excluded Black students because their religious beliefs allegedly mandated “racial separation.” Specifically, the Court ruled that the Internal Revenue Service (IRS) properly withheld federal tax-exempt status to otherwise qualifying entities to enforce “fundamental national public policy” (“FNPP”), as expressed by all three branches of the federal government, against racial segregation in schools, and deemed desegregation a compelling government interest that outweighed any burden on religion. As a private tax dispute, Bob Jones stands alongside legions of other complaints brought by taxpayers aggrieved by IRS actions. But as a case involving an educational institution raising a religious liberty claim against antidiscrimination regulation, Bob Jones raised broader public law issues involving constitutional and federal statutory interpretation, as well as judicial review of administrative action.
This article assesses the legal and symbolic influence of Bob Jones not to relitigate the case or to rewrite history, but to highlight the case’s lasting symbolic impact and lessons for future civil rights advocacy, especially as informed by CRTs that developed alongside the federal courts’ retreat from enforcing existing antidiscrimination norms. Part I examines the case of Bob Jones to show how its political and legal context shaped its unique posture and path to the Supreme Court. Part II examines the afterlife of Bob Jones and its symbolic importance to conservatives motivated to prevent its expansion, even as the decision limits its own impact by leaving crucial substantive questions unresolved: namely, the role of pluralism in enforcing civil rights against First Amendment claims, the viability of race-conscious remedies for racial discrimination, and the visibility of redistributive economic justice concerns. Finally, Part III shows how CRT’s insistence on confronting those same questions reveals persistent inequities sustained by U.S. social and legal institutions, drawing the fire of efforts to Stop CRT. Part III assesses the prospects for moving the difficult questions left unresolved in Bob Jones back to the center of analysis, even with the current Supreme Court in a polarized and partisan political climate. The Article ultimately concludes that the legal reorientation demanded by Bob Jones and initiated by critical theorists, whatever their fate in the Court’s jurisprudence in the near term, remains crucial for identifying and challenging ongoing power disparities in and through every level of democratic government and society.
In honor of Martin Luther King day, posting King reading his tremendous Letter from a Birmingham Jail. Give it a listen. It has potency still today as we reflect on our current moment and as we consider models of nonprofit leadership. Much of the civil rights work was carried out through nonprofits and the letter came from King in his role in leading a large group of nonprofits. Here is the introduction:
"WHILE confined here in the Birmingham city jail, I came across your recent statement calling our present activities "unwise
and untimely." Seldom, if ever, do I pause to answer criticism of my work and ideas. If I sought to answer all of the criticisms
that cross my desk, my secretaries would be engaged in little else in the course of the day, and I would have no time for
constructive work. But since I feel that you are men of genuine good will and your criticisms are sincerely set forth, I would like
to answer your statement in what I hope will be patient and reasonable terms.
I think I should give the reason for my being in Birmingham, since you have been influenced by the argument of "outsiders
coming in." I have the honor of serving as president of the Southern Christian Leadership Conference, an organization operating
in every Southern state, with headquarters in Atlanta, Georgia. We have some eighty-five affiliate organizations all across the
South, one being the Alabama Christian Movement for Human Rights. Whenever necessary and possible, we share staff,
educational and financial resources with our affiliates. Several months ago our local affiliate here in Birmingham invited us to be
on call to engage in a nonviolent direct-action program if such were deemed necessary. We readily consented, and when the hour came we lived up to our promises. So I am here, along with several members of my staff, because we were invited here. I am here because I have basic organizational ties here.
Beyond this, I am in Birmingham because injustice is here. Just as the eighth-century prophets left their little villages and carried their "thus saith the Lord" far beyond the boundaries of their hometowns; and just as the Apostle Paul left his little village of Tarsus and carried the gospel of Jesus Christ to practically every hamlet and city of the Greco-Roman world, I too am compelled to carry the gospel of freedom beyond my particular hometown. Like Paul, I must constantly respond to the Macedonian call for aid.
Moreover, I am cognizant of the interrelatedness of all communities and states. I cannot sit idly by in Atlanta and not be
concerned about what happens in Birmingham. Injustice anywhere is a threat to justice everywhere. We are caught in an
inescapable network of mutuality, tied in a single garment of destiny. Whatever affects one directly affects all indirectly. Never
again can we afford to live with the narrow, provincial "outside agitator" idea. Anyone who lives inside the United States can
never be considered an outsider.
You deplore the demonstrations that are presently taking place in Birmingham. But I am sorry that your statement did not express a similar concern for the conditions that brought the demonstrations into being. I am sure that each of you would want to go beyond the superficial social analyst who looks merely at effects and does not grapple with underlying causes. I would not
hesitate to say that it is unfortunate that so-called demonstrations are taking place in Birmingham at this time, but I would say in more emphatic terms that it is even more unfortunate that the white power structure of this city left the Negro community with no other alternative."
You can read the text here.
Friday, January 14, 2022
As best I can tell, GoFundMe allows both individuals and organizations to solicit money. While GoFundMe does allow charities to ask for money, my impression is that individuals looking for help with medical bills and other emergencies is a big part of what it does.
Classy, by contrast, appears to focus exclusively on putting donors together with nonprofits. I confess that I hadn't heard of them until this morning, but the acquisition announcement says that over its 10-year life, Classy has helped put $4 billion in the hands of nonprofits (including $1.1 billion last year).
I confess that I don't have any sense of who benefits from this kind of consolidation in the nonprofit fundraising sector. Is it good for charities? for donors? for shareholders of the two companies? (If you have thoughts, I'd love to hear them in the comments or in emails!)
It will, however, be interesting to watch what happens as GoFundMe starts to focus on nonprofit fundraising in a serious way.
Samuel D. Brunson
Wednesday, January 12, 2022
Anil Arya (Ohio State), Brian Mittendorf (Ohio State) and Ram Ramanan (SUNY at Binghamton) have posted A Model of Equity Pricing in Light of Insider Stock Donations to SSRN. Its abstract follows:
Corporate insiders face substantial restrictions on stock sales, but many have viewed receiving tax deductions from charitable donations of stock holdings as an alternative way to benefit. In fact, empirical evidence consistently indicates that executives make use of their private information in determining the size and timing of their charitable giving. This paper develops a parsimonious model of informed stock trading that accounts for the practical consideration that disposal of stock by insiders often takes the form of charitable donations rather than direct trading. We demonstrate that equilibrium charitable gifts by insiders reflect their private information about firm value and do so in a manner that facilitates price discovery even more efficiently than routine informed trading does. Given the heightened sensitivity of stock donations to firm value, the results provide implications of such donations for market properties, market participants, and charity proceeds, as well as identify how these effects vary with prevailing tax policy.
Samuel D. Brunson
Tuesday, January 11, 2022
The WVW Foundation is (or, rather, was) a 501(c)(3) organization meant to support Worldview Weekend Broadcast Network, which appears to be a radio/streaming network dedicated to conspiracy theories regarding, among other things, the 2020 election (with respect they've partnered with the MyPillow guy) and vaccines.
In its 2017 990, WVWF claimed exemption as a publicly-supported "religious, educational, and charitable" organization. But its exemption was automatically revoked seven months ago for failure to file a return for three straight years.
Monday, January 10, 2022
My colleague Jim Hagy founded and has been directing the Rooftops Project for the last twelve or so years. The Rooftops Project focuses largely (though not exclusively) on nonprofits' physical spaces and, for the last seven or eight years, has also featured a conference in Chicago. The conference brings together nonprofit leaders, policymakers, academics, and others. This year the conference, which will be held on February 25 from 8:30 until 2:00 Central, is entirely online. The conference is free and you can preregister here.
If you have time, I'd strongly recommend registering and attending. The conference is always fascinating. I have to admit that, prior to attending, I'd rarely thought about the physical spaces of nonprofits, but they matter in a number of ways. The panelists are always excellent and this year, the conference will include two panels focused on DEI in the charitable sector.
So good luck as you get back into the semester, stay safe and healthy, and consider registering for the Rooftops Conference.
Samuel D. Brunson
Sunday, January 9, 2022
It is with great sadness that I report Marion R. Fremont-Smith passed away peacefully at her home on December 30, 2021, at the age of 95. While her work helping found the field of Nonprofit Law long predates my involvement, I can share that she constantly encouraged and supported my attempts to contribute to that field. This included through agreeing to meet with me one-on-one when I was able to visit Harvard once, as well as inviting me to present at the nonprofit law seminar that she helped start with Dan Halperin. For more eloquent tributes, see this posting by Mark Sidel on the ISTR website and this remembrance from the NYU National Center on Philanthropy and the Law. A short obituary can be found here.
Andrew Flynn (Ropes & Gray law firm) has published Restoring the Conservation Purpose in Conservation Easements: Ensuring Effective and Equitable Land Protection Through Internal Revenue Code Section 170(h) in the Stanford Environmental Law Journal. Here is the abstract:
Conservation easements are legal restrictions limiting development and are intended to preserve natural lands, historical areas, and open space. And for more than 50 years, Congress has permitted taxpayers to claim an income tax deduction when they make a charitable donation of an easement. These easements are now the primary form of environmental preservation in the United States.
But the current Internal Revenue Code provision authorizing this deduction invites donations with questionable preservation value to the public and high-profile instances of abuse. It also disproportionately favors the wealthy. Notably, most donations are not required to provide public benefit. Reform proposals and law journal articles discuss the challenges of valuing easements, but there is little discussion of how to ensure the deduction properly incentivizes quality conservation work.
This article fills that void. It examines the current law and discusses how Congress can ensure the deduction is available only to easement donations which further cohesive environmental protection goals. It proposes requiring all easement donations to provide a public benefit and to be in accordance with conservation and strategic goals developed by local governments and non-governmental organizations. It also proposes specific policy reforms, drawn from other sections of the Code, to achieve this goal.
Steven H. Sholk (Gibbons law firm) has posted the annual update for his comprehensive and detailed 589-page Guide to Election Year Activities of Section 501(c)(3) Organizations. According to the Table of Contents, it includes:
- statutory provisions on contributions, expenditures, and electioneering
- statutory and regulatory provisions on contributions to and fundraising for section 501(c)(3) organizations
- regulatory provisions on contributions, expenditures, and electioneering
- voter registration and get-out-the-vote drives
- voter guides
- candidate appearances and advertisements
- candidate debates
- candidate use of facilities and other assets
- website activities
- campaign activities of section 501(c)(3) organizations' directors, offices, and employees
- consequences of violations
The litigation involving the NRA and the NRA Foundation continues its slow march without any recent major public developments. But in its latest IRS Form 990 (see page 46 of the 67-page filing, which provides Supplemental Information for Schedule L) the NRA acknowledged new excessive benefits paid to CEO Wayne LaPierre, the Wall Street Journal reports. The article says these include $44,000 in private jet flights, and notes that the NRA is investigating other transactions. And a detailed Open Secrets report shows how funds flowed between the NRA's section 501(c)(3) affiliates and its non-charitable entities. And I recently learned, thanks to the EO Tax Journal, that there is a donor class action suit pending in federal court against the NRA that is being tracked by NRA Watch. So lots to keep the NRA's lawyers busy for the foreseeable future.
Perhaps not surprisingly given the prominence of the Supreme Court's Americans for Prosperity Foundation decision last summer, there have been a stream of news stories about nonprofits involved in flows of funding from unknown sources. Here are several recent examples:
- Trump's Dark-Money Machine Gets a Makeover - and New Owners: Daily Beast article featuring coverage of the nonprofit America First Policies, now named America First Works, and other nonprofits with which it has had financial dealings.
- Inside the Dems' Dark Money Machine: As detailed in this Puck article, the left side of the aisle has also learned how to use the various types of nonprofits to influence politics, including with funds from sources that prefer to remain anonymous (at least to the public).
- Moms for Liberty: How an army of education activists has become a national political force: And of course politically active nonprofits are not solely the province of experience political actors; USA Today reports that the grassroots Moms for Liberty nonprofit, which as a section 501(c)(4) does not have to disclose its donors, has now spread to 33 states, riding the waive of opposition to COVID-related restrictions and objections to teaching what opponents label Critical Race Theory.
- UPDATE: Guess Who’s Secretly Backing This ‘Anti-Smoking’ Vape Group: And using nonprofits to conceal funding sources can also prove useful to businesses seeking to hide their involvement in lobbying campaigns, as the Daily Beast reports appears to be the case with the clandestine support of British American Tobacco of the World Vapers' Alliance and related groups.
Friday, January 7, 2022
There has been a constant stream of news stories relating to the involvement of nonprofits in the January 6th attack and promulgation of the lie that former President Trump won the 2020 election. (Photo credit: Eric Lee / Bloomberg.) Here are some highlights:
- False Incorporation Papers?: The Guardian reported that a federal grand jury has "uncovered evidence that [Trump former lawyer Sidney] Powell filed false incorporation papers with the state of Texas for a non-profit she heads." The papers, submitted in December 2020, listed two individuals as members of the board of directors for Defending the Republic, neither of whom apparently had agreed to serve in this role.
- Diversion of Funds?: The above report also states that the grand jury is looking into whether Ms. Powell used funds from the same nonprofit that had been given to finance lawsuits challenging the 2020 election results to instead defend herself in defamation cases. Going into more detail, the Washington Post reported that the nonprofit and a Florida successor entity with the same name raised more than $14 million, with the use of most of the funds still unclear.
- Liability for Groups Involved in Insurrection?: The Washington Post also reported that the D.C. Attorney General has filed a lawsuit against the Proud Boys and Oath Keepers, seeking stiff financial penalties from the groups for their role in the January 6th violence. According to the complaint, the first group is a Texas limited liability company (and it is not clear if it is a nonprofit), while the second group is a Nevada nonprofit corporation. Neither group appears to have federal tax-exempt status based on the IRS Tax Exempt Organization Search feature. Additional coverage: NPR; Reuters; Vanity Fair.
Earlier this week, the IRS Tax Exempt & Government Entities Division issued is FY2021 Accomplishments Letter. While most of the issues highlighted are described in a relatively vague fashion, at least three exempt organizations items stand out:
- Examinations Remain Low: "EO completed examinations of 3,249 filings in fiscal year 2021, including the Form 990 series (990, 990-EZ, 990-PF, 990-N, 990-T) and their associated employment and excise tax returns. Overall, 82% of closed examinations resulted in a tax change (change percentage) and 34% of the examinations were “picked-up” from a related examination (pick-up percentage). We proposed revocations (agreed and unagreed without protest) for 94 tax-exempt entities as a result of these examinations."
- Applications Increase: Exempt Organizations received approximately 110,000 applications, an increase over the approximately 100,000 applications in FY20, and the less than 100,000 applications in FY19, while closing close to 95,000 applications (of which it approved close to 82,000).
- Increased Hiring, But Also Attrition: "Hired 120 individuals through fiscal year 2021 and conducted 245 interviews to fill 132 additional revenue agent positions. We prepared for a larger hiring campaign in fiscal year 2022." But even so TE/GE reported that the 1,521 employees represented "a nearly 5.1% loss when coupled with rate of attrition from the end of the prior year." Between 500 and 550 of those employees work in the Exempt Organizations area.
Wednesday, January 5, 2022
For people attending the virtual American Association of Law Schools (AALS) Annual Meeting this week, there are two nonprofit-related presentations of which I am aware that may be of interest.
On Sunday at 11:00 a.m. (Eastern), the Nonprofit and Philanthropy Law section will present A Subsidy for Inequality: Bob Jones and Fundamental Public Policy Today. The presenters are Provost JoAnne A. Epps (Temple), along with two of our blog contributors, Samual D. Brunson (Loyola-Chicago) and yours truly; the moderator is Khrista McCarden (Tulane), who is also a blog contributor.
And on Sunday at 4:45 p.m. (Eastern), the Tax Section will present New Voices in Taxation, including The Black Tax: How the Charitable Contribution Subsidy Reinforces Black Poverty by Nyamagaga R. Gondwe (NYU) (forthcoming in the Tax Law Review). Here is the abstract:
This paper analyzes tax-based welfare policy through the lens of Black economic history. It juxtaposes the tax treatment of Black Kinship Networks and the charitable contributions deduction in the federal tax code to show how the tax incentive for charity creates an economic burden for the Black community. The paper argues that when the tax code creates incentives to attract private capital to welfare projects without making antipoverty welfare a condition of the tax benefit, it shifts the burden and cost of providing welfare services back to communities in need. In the Black community, wealth and income disparities make the lack of public welfare accommodations an even greater burden. Still, Black Kinship Networks facilitate the survival of in-group members, as they have for generations, in an effort to counteract the effect of declining public welfare and ineffectual private welfare.