Wednesday, April 23, 2014

Crowdfunding for Nonprofits: Solicitation or Matchmaking?

“Crowdfunding” appears to be all the rage.  Investopedia defines crowdfunding on the most basic level as the “use of small amounts of capital from a large number of individuals to finance a new business venture.”    In the earliest days, crowdfunding was basically a plea for money – see the artistic ventures funded primarily through Kickstarter.    The problem with that model, of course, is that one could not get equity in return for your contribution – after all, that starts to look an awful lot like a securities offering, and the SEC has issues with that.    The Jumpstart Our Business Startups (or, pithily, JOBS) Act of 2012 was designed in part to loosen the securities regulations on small business, so that there will be greater flexibility in the ability to offer equity in return for contributions through crowdfunding (or at least there will be when the SEC gets around to issuing regulations on the matter.)  

So what about nonprofits?  A recent article in TechCrunch, cited by the Chronicle of Philanthropy, notes the website Crowdrise recently received $24.0 million in financing. (note: it’s a for-profit site) allows you to “create a fundraiser” for your event.  It appears that it isn’t limited to charities, although the site links to in order to filter the bona fide Section 501(c)(3)s from the merely well-intentioned.   There seems to be a lot of fundraising teams for fun runs and the like, as well as fundraisers for sick individuals and medical expenses.  Some of these might qualify for a Section 170 deduction if given directly to the organization; other, such as the fundraisers for medical expenses, wouldn’t qualify for a deduction, no matter how well intentioned.    Crowdrise does state:

Your donation to a US-Based 501(c)3 charitable organization through CrowdRise is 100% tax deductible to the extent allowed by law. We will email you a receipt that meets all IRS requirements for a record of your donation.  If you are asked to provide a paper receipt for IRS purposes, please print out a copy of your email receipt. If you lose your receipt, email [email protected] and we'll send you a duplicate. Be sure to include your first and last name and the email address you used to make the donation. Donations to indviduals [sic] are not tax-deductible.

Crowdrise receives a transaction fee for each contribution made, which varies depending on the manner in which the transaction is consummated.

From a regulatory stand point, should we worry about this?  In the for-profit world, we have the SEC and its state law counterparts.  The IRS won’t (and shouldn’t) get involved, it seems to me, unless we are worried about charitable deduction issues.   That being said, is this high tech direct mail, and should it be regulated as such?  Take, for example, the Illinois Solicitation for Charity Act, which defines a professional fund raiser as one who receives “compensation or other consideration… on behalf of a charitable organization residing within this State for the purposes of soliciting, receiving or collecting contributions…”

Or is Crowdrise just an intermediary – it makes no legal representations that what is does is charitable or tax-deductible, necessarily.  I’d be curious to know how state regulators are approaching sites like Crowdrise from a solicitation regulation stand point, and how the Charleston principles would apply to such a website?



April 23, 2014 in In the News, State – Executive, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Massachusettes AG Sues Former Nonprofit President for Excessive Compensation; President and Board Should Expect Deficiency Notice Soon

In a complaint that should serve (unfortunately) as an excellent teaching prop for those of you teaching the tax law of exempt organizations, the Massachusettes Attorney General accused the former president of Falmouth College of engaging in acts that at the federal level can only be described as violative of the prohibitions against private inurement and excess benefits.  Acording to the Boston Globe:

Attorney General Martha Coakley sued the former president of a tiny Falmouth college on Tuesday, seeking to force him to repay the school millions that he allegedly squandered on excessive compensation, Mercedes automobiles, and a quarter-million-dollar timeshare in the Caribbean.In the lawsuit, filed in Suffolk Superior Court, Coakley also charged that President Robert J. Gee gave himself a $152,175 bonus in 2009, and then created false documents to make it appear that the school’s board members held a meeting to award Gee the money for his “superior job performance.’’ No such meeting ever occurred, according to the lawsuit.  During Gee’s tenure, the college he headed, the National Graduate School of Quality Management, bought an ocean-view compound with four houses that included a presidential home for Gee. Last year, the school sold those properties at a loss of at least $1.5 million.

As with campaign intervention, private inurement and excess benefit at this level is so obvious as to lack instructional value.  The complaint is useful to demonstrate the role of local AG's in regulating nonprofits.  And their is also a useful practical lesson.  In my experience, one of the enduring truisms of nonprofit governance is that the founder can never, ever, ever be trusted years down the road when his or her zeal for whatever mission provoked the nonprofit's founding has worn off but the nonprofit is still bringing in serious revenue.  It is a recipe for disaster and almost always leads to the founder treating the organization as his own private sugar daddy.  And the board members, probably all the President's golfing buddies, better get set for the notices that derive from IRC 4958. 



April 23, 2014 in State – Judicial | Permalink | Comments (0) | TrackBack (0)

Tuesday, April 22, 2014

Campaign Intervention Results in Revocation

The Patrick Henry Center, a (c)(3) with no apparent raison d'etre other than campaign intervention,  has lost its tax exempt status because of, well . . . campaign intervention.  The USA Today reported the story last Friday.  The heavily redacted Final Determination is available here.  You have to step pretty far beyond the line for the Service to take the trouble to revoke exempt status.  This case is no exception to that rule.


April 22, 2014 | Permalink | Comments (0) | TrackBack (0)

Draft Form 1023-EZ (streamlined 501(c)(3) application)

OmbAn observant attorney noticed that Treasury and the IRS have submitted a short version of IRS Form 1023, the Application for Recognition of Exemption Under IRC § 501(c)(3), for review by the Office of Management and Budget under the Paperwork Reduction Act.  The Form 1023-EZ would be a streamlined, two-page form that the IRS estimates approximately 17 percent of applicants could use instead of the current, much longer Form 1023 (see the supporting statement filed with OMB).  The draft instructions for the new form state that the form would only be available to organizations that expect to be relatively small financially (no more than $200,000 in annual gross receipts and no more than $500,000 in total assets) and are not churches, schools, hospitals, supporting organizations, or a number of other rarer types of 501(c)(3) groups.  This would appear to make the form available only for small organizations that do not qualify by virtue of their activities as public charities, that is small organizations that are either private foundations or publicly supported.

Interestingly, the National Taxpayer Advocate in her 2007 Annual Report to Congress (see item 6 on page II-3 of the Executive Summary) recommended a separate Form 1023-EZ for use by smaller organizations.  The recommendation, however, would have only made the shorter form available to non-private foundations with annual gross receipts not normally more than $25,000.  (See Volume I, Section Two, page 535 of the full report.)

Hat Tip:  Charles ("Chip") Watkins

Lloyd Mayer

April 22, 2014 in Federal – Executive | Permalink | Comments (0) | TrackBack (0)

Nonprofits Challenge Donor Disclosures Required by California AG, IRS, and FEC

CcplogoA tax-exempt nonprofit that solicit contributions in California is challenging a demand from the California Attorney General's office that they provide unredacted copies of their IRS Form 990 Schedule B, which lists major donors.  As most readers of this blog likely know, while Schedule B is submitted to the IRS the IRS is required to keep the names and other identifying information of the donors listed confidential.  Similarly, while tax-exempt organizations are generally required to provide copies of their Forms 990 upon request, they can redact this donor identifying information before they do so.  The organization that is challenging the demand is the section 501(c)(3) Center for Competitive Politics, which has filed a lawsuit in federal district court as detailed at the link above. 

In a separate challenge to compelled disclosure of donors, according to a Washington Examiner article the section 501(c)(4) Campaign for Liberty, which is associated with Ron Paul, is challenging the ability of the IRS to require disclosure of donor information on Schedule B even if that information is not (supposed to be) disclosed publicly.  While not completely clear from the article, it appears that the group is refusing to provide the required information and refusing to pay any fines imposed by the IRS as a result, presumably for filing an incomplete Form 990.  These two challenges join an earlier challenge by the Tea Party Leadership Fund, a PAC and therefore presumably a section 527 tax-exempt organization, to donor disclosure required by the Federal Election Commission, as reported by NPR.

Lloyd Mayer

April 22, 2014 in Federal – Judicial, State – Executive | Permalink | Comments (0) | TrackBack (0)

Wednesday, April 16, 2014

Political Activity Regulations Will Be Re-Written Again . . . and Again (from scratch!)

Let's face it, any attempt at regulating political activity by grass roots organizations, charitable or otherwise, is bound to fail.  Why?  Because nobody has ever explained why engaging in political speech is not a public good, less deserving of subsidization than education, poverty relief, or any of the many other activities considered charitable or advantageous to the social welfare.  What's wrong with political participation through grass roots organizations?  Don't we want more political participation?  Of course we do, but somewhere along the way somebody decided, without ever explaining why, that political engagement was neither charitable nor beneficial to the social welfare.  And by the way, if the evil to be avoided is "capture" of the political process by those wealthy enough to pay to broadcast their speech to wider audiences, wouldn't subsidizing political speech through deductions, exemptions, credits, (maybe with a dramatic cliff so that those who don't need subsidization don't get it) reduce the advantage of money (even if only slightly)?  Why in the world do we assume that one taxpayer should not subsidize another's participation in the political process, when we -- "we" are the government, the government is not "them" -- subsidize all sorts of activities about which there can be no unanimity of opinion.  Remember, too, that we would not be subsidizing a particular viewpoint, just the act of participation.  Just participation.  Seems to me we are wasting an awful lot of time and money trying to stamp out something we don't even think is a bad thing.  And that really is why the effort to regulate political speech subsidized by tax exempt dollars will inevitably fail.  We don't even know why we think political activity is a bad thing.  Something about Lyndon Johnson trying to put a political opponent out of business, right?  I doubt anybody even thinks engaging in the political process is a bad thing.  I'll even go one step further.  Engaging in the political process, even as a staunch lunatic partisan, is probably consistent with most people's conception of "civic duty."  So we should do away with the various prohibitions of and limitations on political activity via collectives.  Then people can support whatever political cause they want through whatever non-governmental organization they want.  I don't necessarily support your position just because I am willing to subsidize (if failing to tax really is a subsidy) your participation in the process.  Look, the rich can talk to more people more often whether we limit nonprofits from engaging the political process or not.  Limiting grassroots participation by denying tax exempt organizations for groups that do only exacerbates that advamtage.  

But I digress.  Every [law school] administrator knows that when everybody complains about something you have done, you either have it perfectly right or all wrong.  Well, everybody is complaining about the proposed "candidate related activity" regulations.  The Service apparently believes the complaints indicate it has the proposed regulations all wrong and apparently is going to start all over again with the effort to stamp out (that is really what we are trying to do, isn't it?) political speech by social welfare organizations.  The Washington Post Blog reports:

The head of the Internal Revenue Service this week signaled that his agency will re-write proposed new limits on the political activities of nonprofit advocacy groups, quelling concerns from the left about overreach but failing to win over conservatives. Lawmakers and policy analysts on both sides of the political spectrum have voiced opposition to the draft guidelines, which would prohibit tax-exempt organizations from engaging in certain election-related activities including voter-registration and get-out-the-vote drives. Conservatives have argued that the proposals are part of an Obama administration plot to silence criticism from the right. Liberals have said the plans go too far and need reworking.

"Re-write" as in start all over again.  Just one big waste of time and effort unless and until we agree on a fundamental theory explaining the motivations for the exercise in the first place.



April 16, 2014 in Federal – Legislative | Permalink | Comments (3) | TrackBack (0)

Tuesday, April 15, 2014

Interesting Source Documents re: 501(c)(4) application for exemption

One of the few beneficial effects of the faux scandal regarding the IRS' treatment of 501(c)(4) entities is likely to be public access to lots of stuff that would otherwise not be accessible.  Stuff that might be useful for someone teaching or writing about charities, social welfare organizations and political activity.  For instance, you can find almost the entire case file pertaining to Americans for Responsible Leadership's application for tax exemption here.  For those of us who are not in the trenches often enough (or maybe don't have a life!), this actually makes for interesting reading.


April 15, 2014 in Federal – Executive | Permalink | Comments (1) | TrackBack (0)

Nonprofit Finance Fund: State of the Nonprofit Sector Survey

New York – April 7, 2014– The economic recovery is not offering signs of relief for the nonprofit sector, and many organizations are now looking to new models of funding, according to the results of the Nonprofit Finance Fund’s 2014 State of the Nonprofit Sector Survey. Leaders from more than 5,000 nonprofits nationwide participated in this sixth annual survey. Many reported daunting financial situations, and said they are looking at new ways to secure the future of their organizations for the benefit of the people they serve.  The survey was supported by longtime partner the Bank of America Charitable Foundation as well as the Ford Foundation.

The economic recovery is leaving behind many nonprofits and communities in need:

  • 80% of respondents reported an increase in demand for services, the 6th straight year of increased demand.   
  • 56% were unable to meet demand in 2013—the highest reported in the survey’s history.  
  • Only 11% expect 2014 to be easier than 2013 for the people they serve.

“Americans rely on nonprofits for food shelter, education, healthcare and other necessities, and everyone has a stake in strengthening this social infrastructure,” said Antony Bugg-Levine, CEO of Nonprofit Finance Fund. “The struggles nonprofits face are not the short-term result of an economic cycle, they are the results of fundamental flaws in the way we finance social good.”

For many nonprofits, the funding landscape is changing. Of respondents who receive government funding, nearly half have seen support decline over the past five years.

 Nonprofits are working to bring in new money; in the next 12 months:

  • 31% will change the main ways in which they raise and spend money.
  • 26% will pursue an earned income venture.
  • 20% will seek funding other than grants & contracts, such as loans or other investments.

“Today’s environment requires creative problem-solving and good communication with funders and partners,” said Robert Chávez, Chief Executive Officer of Urban Corps of San Diego County, which provides a high school education and green job training to young adults. “As a conservation corps, we have always relied on a fee-for-service program model to fund job training projects. Now, we are diversifying our services and exploring new income-generating partnerships in order to supplement at-risk funding, become fully self-sufficient, and ultimately better serve youth.”

41% of nonprofits named “achieving long-term financial stability” as a top challenge, yet:

  • More than half of nonprofits (55%) have 3 months or less cash-on-hand. 
  • 28% ended their 2013 fiscal year with a deficit.  
  • Only 9% can have an open dialogue with funders about developing reserves for operating needs, and only 6% about developing reserves for long-term facility needs.  

“The closer a system gets to failure, the harder it becomes to devote scarce resources toward building a better future,” said Bugg-Levine. “The nonprofit sector’s greatest asset is tenacious, creative, smart leaders who, despite significant challenges and with the right support, have the capacity to lead the United States into a new era of civic and social greatness.”

Nonprofits are taking wide-ranging steps to survive and succeed.
In the past 12 months:

  • 49% collaborated with another organization to improve or increase services.
  • 48% invested money or time in professional development.
  • 40% upgraded hardware or software to improve organizational efficiency.
  • 39% conducted long-term strategic or financial planning.

“Today, it’s clear that government funding and traditional philanthropy alone can’t cover the critical work of nonprofits addressing pressing challenges in our communities,” said Kerry Sullivan, president of the Bank of America Charitable Foundation. “Tools like the Nonprofit Finance Fund survey can help fuel discussion among nonprofits and the private sector about how new funding models and strategies can better support shared goals of stronger organizations and communities.”

For the first time, the annual survey delved into impact measurement, a core component of some emerging funding models such as pay-for-success:

  • Respondents said that more than 70% of their funders requested impact or program metrics.
  • 77% agreed that the metrics funders ask for are helpful in assessing impact.
  • Only 1% reported that funders always cover the costs of impact measurement; 71% said costs were rarely or never covered.

“The NFF survey results illustrate the ongoing risks of a frayed social safety net dealing with increasing demand,” said Hilary Pennington, vice president of the Ford Foundation’s program for Education, Creativity and Free Expression. “If we continue to expect nonprofits and their dedicated staff to meet society’s most critical needs at the most crucial times– we need to recommit as a society to strengthen the necessary supports to do just that.”


April 15, 2014 in Studies and Reports | Permalink | Comments (0) | TrackBack (0)

Thursday, April 10, 2014

Did Nonprofit Law Prof Blog Precipitate IRS Scrutiny of (c)(4) political activity?

Most certainly not.  But on page 31 (and appendix 15) of Darrell Issa's report, "Lois Lerner's Involvement in the IRS Targeting of Tax-Exempt Organizations," the staff authors cite an email exchange between Policy and EO regarding this Nonprofit Law Prof post as evidence of a "secret" plan to target conservative (c)(4) organizations.  The email author describes the potential issuance of guidance on (c)(4) political activity "off-plan," meaning, of course, that the topic was not previously part of the yearly "to do" list the Service issues every year.   Unremarkable, if one understands that executive branch departments frequently issue annual workplans, sometimes supplemented as the year progresses.  Nevertheless, "information available to the Committee," says the report, conspiratorial music playing in the background, "indicates that Lerner played some role in the IRS's and the Treasury Department's secret "off-plan" work to regulate 501(c)(4) groups."   Can't make this stuff up.


April 10, 2014 in Federal – Legislative | Permalink | Comments (0) | TrackBack (0)

Michigan Radio: Are Tax-Exempt Properties Bleeding Cities Dry?

Last week we blogged on a report out of the University of Michigan regarding the impact of tax exempt property owners on city coffers.  Click here to listen to Michigan Public Radio discuss the report.  There is an accompanying article here.



April 10, 2014 in Studies and Reports | Permalink | Comments (0) | TrackBack (0)

Tuesday, April 8, 2014

A Case Study of Legislation vs. Regulation: Defining Political Campaign Intervention under Federal Tax Law

Ellen Aprill's latest article appears in the Duke Law Journal and is available from SSRN.  Here is the abstract:

The rules that should govern political campaign intervention by social welfare organizations exempt from taxation under § 501(c)(4) of the Internal Revenue Code have been the subject of recent controversy. Long before all the attention, a group of dedicated and experienced experts on the topic, under the auspices of two well-known nonprofit groups, undertook the task of clarifying the rules regarding tax-exempt political activity. In light of the issues becoming national news, the group, known as the Bright Lines Project, also converted the regulatory proposal into legislative language. These two versions of the same rules — as a set of regulations and as a set of statutes — provide a natural laboratory to compare the administrative law implications of choosing between legislation and regulation to establish a set of tax rules. This Article undertakes that examination. It concludes that, if revenue rulings interpreting regulations are afforded deference under Auer v. Robbins and Bowles v. Seminole Rock & Sand Co., promulgating the initial definition of political campaign intervention as a set of regulations may well give the Internal Revenue Service greater power to police political campaign intervention by exempt organizations than would the enactment of detailed legislation. It recommends, however, that broad statutory guidance, followed by regulations, and then by revenue rulings strike the best balance between democratic concerns and administrative flexibility.


April 8, 2014 in Publications – Articles | Permalink | Comments (1) | TrackBack (0)

Repairing Facade Easements: Is This The Gift That Launched a Thousand Deductions

Martha Jordan has posted the article which is the title of this post.  Here is the abstract:

This article explores the impact of such a covenant on the characterization for tax purposes of expenditures to maintain the facade. In particular this article explores the following question: Given that the charitable easement holder owns a nonpossessory interest in the facade, which imposes on the charity an obligation to repair and maintain the facade and entitles it to benefit from increases in the value of the facade, is a donor's assumption of the charity's obligation to repair the facade an additional charitable contribution to the charity? If a donor gratuitously makes improvements to property owned outright by a charity, such improvements are deductible charitable contributions. Similarly, if a donor gives money to a charitable easement holder to enable it to maintain the property subject to the easement, such donations are deductible charitable contributions. This article goes one step further and asks whether a donor who assumes the cost of maintaining the charity's nonpossessory interest in the facade makes an indirect deductible charitable contribution to the charity when such repairs are made. Having done so, this article concludes that if the general rule imposes the obligation to repair the facade on the charitable easement on the easement holder, the covenant in which the donor assumes liability to repair the servient estate represents the donor's promise to make gifts in the future and that payments pursuant to such a promise constitute, to the extent of the charity's obligation to repair, additional indirect charitable contributions. This article also concludes that current law supports the allowance of a deduction for indirect, as well as direct, charitable contributions.

The article appeared in the Akron Tax Journal.


April 8, 2014 in Publications – Articles | Permalink | Comments (0) | TrackBack (0)

Saturday, April 5, 2014

Kaufman v. Commissioner (Again)—Façade Easement Had No Value and Penalties Imposed

KaufmanIn the fourth in a line of cases, Kaufman v. Commissioner, T.C. Memo. 2014-52 (Kaufman IV), the Tax Court sustained the IRS’s complete disallowance of charitable deductions claimed under IRC § 170(h) for a façade easement donation. The court also sustained the imposition of penalties on the
 basis of gross valuation misstatement, negligence, or substantial understatement of income tax. The property involved is a residential rowhouse in the South End historic district of Boston, Massachusetts.

In the first two Kaufman cases (Kaufman v. Commissioner, 134 T.C. No. 9 (2010) and Kaufman v. Commissioner, 136 T.C. No. 13 (2011)), the Tax Court held that the mortgage subordination agreement obtained in connection with the façade easement donation, which granted the Kaufman’s lender priority rights to insurance or condemnation proceeds in the event of the easement’s extinguishment, caused the donation to fail as a matter of law to comply with the “enforceable-in-perpetuity” requirements of the Treasury Regulations interpreting § 170(h).

In the third Kaufman case (Kaufman v. Shulman, 687 F.3d 21 (2012)), the First Circuit vacated the Tax Court’s holdings in part, but remanded on the issue of valuation. The First Circuit noted that the IRS had pointed to evidence that the value of the easement was close to zero, and “170(h) does not allow taxpayers to obtain six-figure deductions for gifts of lesser or no value.” The First Circuit also explained that the Kaufmans had expressed concern to the donee—the National Architectural Trust (NAT)—about the high appraised value of the façade easement because it implied a substantial reduction in the resale value of their home. “In an effort to reassure them, a [NAT] representative told the Kaufmans that experience showed that such easements did not reduce resale value.” “This,” said the First Circuit, “could easily be the IRS's opening argument in a valuation trial.”

And so it apparently was. In Kaufman IV, in sustaining the complete disallowance of the deductions claimed with regard to the  easement donation as well as the imposition of penalties, the Tax Court placed particular emphasis on the fact that a NAT representative had sent an email to Mr. Kaufman explaining that façade easements do not reduce the value of the properties they encumber, and the Kaufmans nonetheless claimed charitable deductions based on an appraisal, obtained from an appraiser NAT had recommended, indicating that their easement reduced the value of the rowhouse by 12% (or by $220,800). In its opinion, the Tax Court reproduced portions of this “smoking gun” email, which explained, in part:

One of our directors, Steve McClain, owns fifteen or so historic properties and has taken advantage of this tax deduction himself. He would have never granted any easement if he thought there would be a risk or loss of value in his properties.

The Tax Court also noted an article written by a former President of NAT that stated, among other things:

By preserving a piece of historic architecture for future generations, the property owner can get a big tax deduction with little cost or risk.

The Tax Court further noted that, in requesting that the bank holding a mortgage on the rowhouse  subordinate its interest to the easement, the Kaufmans’ represented to the bank that:

The easement restrictions are essentially the same restrictions as those imposed by current local ordinances that govern this property.

While assuming the appraisal the Kaufmans obtained was a “qualified appraisal,” the Tax Court gave no weight to its estimate of value because the court found the appraiser’s method (application of a standard diminution percentage to the value of the property before the easement's donation) to be unreliable and his analysis unpersuasive.

On the other hand, the Tax Court found the IRS’s valuation expert, who determined that the value of the easement was zero, to be more persuasive. The IRS’s expert opined, among other things, that the typical buyer would find the restrictions in the façade easement no more burdensome than local historic preservation restrictions and, even if the façade easement were more restrictive, it would not necessarily reduce the value of the property because homeowners in historic districts place premium value on the assurance that the neighborhood surrounding their homes will remain unchanged over time.

The Kaufmans were also unable to persuade the Tax Court that they made a good-faith investigation of the value of the easement, or acted with reasonable cause and in good faith, or had a reasonable basis for claiming the deductions, and should therefore be able to avoid penalties. This was in large part due to the fact that NAT had represented to Mr. Kaufman, a sophisticated MIT Emeritus Professor of Statistics, that the easement would not reduce the value of the rowhouse, and the Kaufmans nonetheless proceeded, without further investigation, to claim charitable deductions based on the appraiser’s estimated $220,800 reduction in the value of the property.

Nancy A. McLaughlin, Robert W. Swenson Professor of Law, University of Utah S.J. Quinney College of Law

April 5, 2014 | Permalink | Comments (0) | TrackBack (0)

Friday, April 4, 2014

Article on Conservation Easements and Climate Change

Adena R. Rissman (Department of Forest and Wildlife Ecology, University of Wisconsin-Madison), Jessica Owle (SUNY Buffalo Law School), Barton H. Thompson Jr. (Stanford Law School) and M. Rebecca Shaw (Environmental Defense Fund) have posted Adapting Conservation Easements to Climate Change on SSRN.  Here is the abstract:

Perpetual conservation easements (CEs) are popular for restricting development and land use, but their fixed terms create challenges for adaptation to climate change. The increasing pace of environmental and social change demands adaptive conservation instruments. To examine the adaptive potential of CEs, we surveyed 269 CEs and interviewed 73 conservation organization employees. While only 2% of CEs mentioned climate change, the majority of employees were concerned about climate change impacts. CEs share the fixed-boundary limits typical of protected areas with additional adaptation constraints due to permanent, partial property rights. CEs often have multiple, potentially conflicting purposes that protect against termination but complicate decisions about principled, conservation-oriented adaptation. Monitoring is critical for shaping adaptive responses, but only 35% of CEs allowed organizations to conduct ecological monitoring. Additionally, CEs provided few requirements or incentives for active stewardship of private lands. We found four primary options for changing land use restrictions: CE amendment, management plan revisions, approval of changes through discretionary consent, and updating laws or policies codified in the CE. Conservation organizations, funders, and the IRS should promote processes for principled adaptation in CE terms, provide more active stewardship of CE lands, and consider alternatives to the CE tool.



April 4, 2014 | Permalink | Comments (0) | TrackBack (0)

Pittsburgh Nonprofit Target of Union, City Government Seeking Tax Revenue

The New York Times reports that the University of Pittsburgh Medical Center (UPMC), a nonprofit conglomerate of 22 hospitals and 62,000 employees, is facing a campaign by the Service Employees International Union to organize more than 10,000 of UPMC’s service workers.  The story describes the effort as, at times, seemingly “less a traditional unionization battle than an experimental labor effort to demonize, irritate and embarrass the hospital system into adopting a $15-an-hour wage floor, up from the current $11.”  According to union officials, says the story, UPMC’‘s adoption of a $15 minimum wage would render UPMC “a model for Pittsburgh and other cities where hospitals are the largest employers.”


The union is reportedly applying additional pressure by supporting the City of Pittsburgh’s attempts to subject UPMC’s land and facilities to property taxation.  Here is what the story reports on the subject of taxation:


Not stopping there, the union is backing Pittsburgh’s efforts to strip UPMC of $20 million in annual tax breaks on the grounds that it is a profit-seeking company. If it were a nonprofit, the union and city officials ask, why does UPMC, with $10.2 billion in revenues last year, run for-profit facilities in Italy, Ireland and Kazakhstan?


Hospital officials deny the union’s assertions.


W. Thomas McGough Jr., UPMC’s chief legal officer, defended the tax breaks, saying the hospital system provided $887 million last year in charity care, donations for scholarships and subsidies to its medical school. The corporate jet, he said, is largely used to fly teams of executives and doctors to Italy, Kazakhstan and other out-of-the-way places. He said the for-profit operations overseas provided $400 million in profit to bolster the nonprofit activities.



April 4, 2014 | Permalink | Comments (0) | TrackBack (0)

Wednesday, April 2, 2014

NPR's All Things Considered on Television Ministries and "Church" for Purposes of IRC 501(c)(3)

Yesterday's episode of All Things Considered on NPR had an interesting discussion of Congress and the Service's hands-off approach to Churches in general and large television ministries in particular.  The on-air report was generally negative towards the tax treatment of television mega-ministries.  The on-line report, while also mostly negative, is chock full of links to interesting basic data, including financial reports and transcripts of deposition testimony concerning the finances of television ministries.  If you are teaching, researching, or just interested, this is a source worth checking out. 


April 2, 2014 in Current Affairs | Permalink | Comments (0) | TrackBack (0)

Most Recent Nonprofit Advocacy Matters

The most recent issue of Nonprofit Advocacy Matters from the National Council of Nonprofits contains several stories of interest.  Here are some of the headlines:

Senate Action Likely on Expired Giving Incentives

Federal Agencies Shifted Sequestration Burdens on Nonprofits, Others

Connecticut Reconsiders Support for Some Nonprofit Property Exemptions

Public University Pegged for “PILOTS”

The Relationship Between Cities and Nonprofits: It’s Complicated


According to the first story listed above, the Senate Finance Committee plans to consider renewing “several dozen expired tax incentives,” including those described as follows:

The food inventory enhanced tax deductions allowed individuals, businesses, and corporations to donate wholesome food to nonprofits and deduct their cost basis plus one-half the difference between their cost and the market value of the donated goods. The enhanced tax deduction for conservation easement donations permitted landowners to donate or sell certain rights associated with his or her property, such as the right to subdivide or develop, and a private organization or public agency agrees to hold the landowner’s promise not to exercise those rights. The IRA charitable rollover allowed individual taxpayers older than 70 ½ years to donate up to $100,000 from their individual retirement accounts (IRAs) and Roth IRAs to charitable nonprofits without having to treat the withdrawals as taxable income.



April 2, 2014 | Permalink | Comments (0) | TrackBack (0)

AAAS Releases Report on Former President

The Boston Globe reports that the American Academy of Arts and Sciences (AAAS) released a report this week on its former president, Leslie C. Berlowitz, who allegedly “exaggerated her resume and manipulated the compensation process to boost her pay by nearly $2.2 million over her 17-year tenure.”  Berlowitz responded with her own written statement that characterizes the findings as “incomplete and unfair.”

The story contains a link to a letter from the Chair of the AAAS Board to its fellows concerning the scandal, the full AAAS report by the Board of Directors, and Berlowitz’s written response.  Nonprofit lawyers will be especially interested in the report’s findings concerning Berlowitz’s compensation.  The AAAS report concludes that she exerted “inappropriate influence” over the process of determining her compensation and that, as a result, she was excessively compensated.  Particular deficiencies, according to the report, include the use of inappropriate comparability data (supplied by Berlowitz) and the failure to rely on compensation consultants.  The report recommends several changes in governance procedures to address the concerns.

The Globe reports that the Massachusetts Attorney General’s office “is reviewing the report and changes the academy is making.”

Beyond the news value of this story, the facts set out in the AAAS Board’s report might provide an interesting case study for both the board room (where nonprofit lawyers try to educate charity managers) and the classroom (where nonprofit law professors try to educate students).  What allegedly transpired between Berlowitz and the AAAS compensation committee strikes me as similar to situations in which any number of other charitable nonprofits may find themselves. 


April 2, 2014 | Permalink | Comments (0) | TrackBack (0)

Tuesday, April 1, 2014

The Internet of Things and the Coming Dominance of the Nonprofit Society

As a follow up to a recent post discussing Jeremy Rifkin's theory regarding the decline of the capitalist economy and the rise of the sharing economy (moderated by nonprofits), I thought I would post this discussion of the theory on a recent episode of the Diane Rehm show.  (Audio Player required).  On second thought, I now kinda think the reports of the death of capitalism and the birth of the sharing economy are greatly exaggerated.


April 1, 2014 in In the News | Permalink | Comments (0) | TrackBack (0)

The Impact of Tax Exempt Properties on Michigan Local Governments

When it comes to the benefits and burdens that tax exempt organizations bring to local communities, there is always unsupported rhetoric on both sides.  Supporters of tax exempt organizations claim, if only meekly, that they bring more benefits to their communities then their communities bring to them.  Local government leaders claim just the opposite, particularly in connection with their demands for PILOTS.  A March 2014 report from the Gerald Ford Center at the University of Michigan contains a dispassionate discussion of the issue and, though it focuses on local governments in Michigan, is well worth reading.  Here is the conclusion: 

Michigan’s local governments have been hit by decreasing revenues, due largely to both falling property values and the taxes those properties generate, and cuts to revenue sharing from the state government. Property tax revenues—one of the most important sources of funding for local government—are further constrained by the fact that many properties within Michigan’s communities are exempted from paying taxes in the first place. While Michigan’s local leaders are more likely to say the tax-exempt properties (TEPs) in their communities are relatively insignificant when measured as a portion of their jurisdictions’ total land area, potential tax revenues, and sources of service demands, nonetheless, significant percentages say TEPs are in fact moderate or significant factors in these ways. Tax-exempt properties, and the organizations that own them, can be assets and/or liabilities to their local communities. On one hand, they can help attract tourists and can provide jobs, medical services, human services, a more highly educated workforce, and much more. In these ways they might help produce more economic and quality of life benefits to a community than they cost in forfeited revenues. On the other hand, they can also introduce additional costs and burdens on the local government, such as the need for police and fire protection, water and sewer services, street lighting, and street plowing and maintenance. And because they don’t pay property taxes, they enjoy these kinds of benefits while others in the community must cover the associated costs.
For the most part, the MPPS finds that local leaders in Michigan see the TEPs in their jurisdictions as a mixed blessing in terms of their impact on the jurisdictions fiscal health. Overall, 40% say their TEPs are both assets and liabilities to fiscal health, while 26% say they are primarily assets, and just 15% say they are primarily liabilities. However, in jurisdictions where TEPs have a significant presence, 40% of local leaders view them primarily as liabilities to fiscal health.  In terms of their impact on a community’s quality of life, TEPs are more likely to be viewed as assets. Overall, 46% of local leadersview their TEPs as assets in this way, while just 7% see them as liabilities. Statewide, a relatively small portion of Michigan’s local jurisdictions appear to be actively investigating options to generate new revenues to offset the property tax revenues that are currently exempted. Just 24% of local jurisdictions with TEPs say these kinds of issues have been discussed recently among local leaders. However, this shifts dramatically in locations where local leaders say TEPs have a significant presence. In these cases, 60% of MPPS respondents say local leaders in their jurisdictions have discussed these issues ecently, and note that they are looking into a range of options to charge currently exempted properties for the services they receive, with policies such as new millages, fees-for-service, payments-in-lieu-of-taxes agreements, and special assessment districts.

April 1, 2014 in Studies and Reports | Permalink | Comments (0) | TrackBack (0)