Monday, July 24, 2017
The date for the Joint TE/GE Council Meeting has been announced.
The TE/GE Councils were formed to maintain lines of communication between practitioners and the IRS TE/GE Division (and related areas) to:
- open and maintain lines of communication between the TE/GE Division (the “Division”) of the Internal Revenue Service (the “IRS”) and the practitioner community within the regional area,
- provide the Division with the thinking of the practitioner community on procedural and systemic matters,
- provide practitioners a forum to share their concerns with the IRS regarding both policies and specific tax issues and procedures, and
- educate the practitioner community.
The Councils work with the IRS TE/GE Division (and related areas) to accomplish these goals. Each of the five regional councils includes two subgroups: exempt organizations and employee plans. Programs are open to the public.
The inheritance system is beset by formalism. Probate courts reject wills on technicalities and refuse to correct obvious drafting mistakes by testators. These doctrines lead to donative errors, or outcomes that are not in line with the decedent’s donative intent. While scholars and reformers have critiqued the intent-defeating effects of formalism in the past, none have examined the resulting distribution of donative errors and connected it to broader social and economic inequalities. Drawing on egalitarian theories of distributive justice, this Article develops a novel critique of formalism in the inheritance law context. The central normative claim is that formalistic wills doctrines should be reformed because they create unjustified inequalities in the distribution of donative errors. In other words, probate formalism harms those who attempt to engage in estate planning without specialized legal knowledge or the economic resources to hire an attorney. By highlighting these distributive concerns, this Article reorients inheritance law scholarship to the needs of the middle class and crystallizes distributive arguments for reformers of the probate system.
Thursday, June 29, 2017
The Nonprofit Law Section of the AALS has extended the deadline to July 15 for its call for papers for the 2018 annual meeting in sunny San Diego. Here are the details:
The Section on Nonprofit and Philanthropy Law, in co-sponsorship with the Section on Election Law, is pleased to announce a Call for Papers relating to the topic: The Use of Nonprofit Organizations in Political Campaigns.
By the end of 2016, the nonprofit sector was on the verge of becoming politicized. In that year alone, Donald Trump vowed to destroy the “Johnson Amendment,” a rule of tax law that prohibits charities and all other 501(c)(3) organizations (including churches) from political campaign intervention; the IRS determined that Karl Rove’s nonprofit organization “Crossroads GPS” was a valid “social welfare” organization under section 501(c)(4) of the tax code; IRS Commissioner John Koskinen faced impeachment threats in the House of Representatives in the continuing aftermath of the IRS tea party targeting controversy of 2013; and federal courts in New York and California weighed in on the constitutionality of requiring the disclosure of nonprofit donors. All of these events relate to a growing pressure on the nonprofit form to be used for political purposes.
The papers should examine some aspect (or aspects) of the legal and policy issues that arise, including the range of permitted and proscribed political speech, the problem of speech from the pulpit, the use of nonprofit networks, the constitutionality of disclosure rules, and the appropriate tax treatment of political speech.
Please describe your paper proposal in 500 words or less and submit the proposal no later than July 15, 2017. Papers relating to nonprofit and philanthropy law should be sent to Professor Roger Colinvaux of Columbus School of Law at Catholic University at firstname.lastname@example.org. Papers relating to election law should be sent to Professor Franita Tolson of USC Gould School of Law at email@example.com.
Each section will select one presenter for the program to be held during the AALS 2018 Annual Meeting in San Diego.
The authors of the selected papers will be notified by August 1. The paper presenters will be responsible for paying their registration fee and hotel and travel expenses.
Please direct any inquiries about the Call to Professor Colinvaux or Professor Tolson.
Friday, June 23, 2017
This may be because I have been writing in this area (shameless plug), but there seem to be numerous recent stories about various countries increasing the legal restrictions on nonprofits and especially nonprofits with foreign connections. Here are several examples:
In India, the government refused a license to receive foreign funds to Compassion International, a Christian child sponsorship group, forcing the nonprofit to abandon its services to 145,000 children in India after 48 years in the country. If this had been an isolated incident the government's concerns about proselytization might have been plausible, but the N.Y. Times noted that Compassion was only the most recent of 11,000 nonprofits that had similarly lost such licenses since 2014.
In Turkey, the government revoked the registration of Mercy Corps, forcing that nonprofit to abandon its efforts based on Turkey to aid Syrian refugees, according to reports from the Washington Post and other news outlets.
In Hungary, the government enacted laws to require nongovernmental organizations that receive foreign financing to publicly identify themselves and their donors in what some observers believed was an attempt to shut down nonprofits supported by George Soros, including the Central European University, as reported by the N.Y. Times.
In perhaps the most dramatic action, the President of Egypt signed a new law that imposes restrictions on all domestic nongovernmental organizations, regardless of their sources of funding, by making their work subject to approval by a new regulatory body that may be a front for interference by the country's security agencies, also as reported by the N.Y. Times.
Unfortunately there appear to be few viable ways for affected nonprofits to counter these new rules in most of the countries involved, as detailed in my forthcoming article linked to above.
Mark Blumberg (Blumberg Segal LLP) has put together a list, with relevant links, of all 447 Canadian registered charities that have had their charity status revoked by the Charities Directorate of the Canada Revenue Service over the past 25 years. For anyone interested in seeing what types of activities get Canadian charities into trouble with the federal tax authorities, this list could be invaluable. I am not aware of a similar compilation with respect to the IRS in the United States, although Terri Lynn Helge (Texas A&M) has an article in the Pittsburgh Tax Review (Rejecting Charity: Why the IRS Denies Tax Exemption to 501(c)93) Applicants) that looks at IRS denials of applications for recognition of exemption as a charity under section 501(c)(3).
Hat tip: globalphilanthropy.ca.
Earlier this week I posted a link to the recently published Financing the Benefit Corporation article by Dana Brakman Reiser and Steven Dean, but there have been a number of other recent articles and book chapters relating to social enterprise that are worth mentioning, including several draft book chapters forthcoming in The Cambridge Handbook of Social Enterprise Law:
Seattle University Law Review: Benefit Corporations and the Firm Commitment Universe (sixteen articles, including the Reiser & Dean article )
Brian D. Galle (Georgetown), Self-Regulation of Social Enterprise, forthcoming in The Cambridge Handbook of Social Enterprise Law
Andrew S. Gold (DePaul) & Paul B. Miller (McGill), Fiduciary Duties in Social Enterprise, forthcoming in The Cambridge Handbook of Social Enterprise Law
Lloyd Hitoshi Mayer (Notre Dame), Creating a Tax Space for Social Enterprise, forthcoming in The Cambridge Handbook of Social Enterprise Law
Brett McDonnell (Minnesota), Three Legislative Paths to Social Enterprise: L3Cs, Benefit Corporations, and Second Generation Cooperatives, forthcoming in The Cambridge Handbook of Social Enterprise Law
Peter Molk (Willamette), Do We Need Specialized Business Forms for Social Enterprise?, forthcoming in The Cambridge Handbook of Social Enterprise Law
Emily Winston (NYU), Benefit Corporations and the Separation of Benefit and Control, forthcoming in Cardoza Law Review
The study of nonprofits goes well beyond the laws governing them, and there are a number of publications and organizations dedicated to that study. Here is a sampling of both recent articles and upcoming conferences from this broader academic space (the logo shown here is from the Indiana University-Purdue University Lilly Family School of Philanthropy, which is hosting the first conference listed):
RECENT ARTICLES (click through to see tables of contents for these publications)
Nonprofit Academic Centers Council Biennial Conference, Indianapolis, July 31-August 2
Science of Philanthropy Initiative, Chicago, September 6-7, 2017
Comparing Third Sector Expansions Workshop, New York, October 4-7, 2017
ARNOVA Annual Conference, Grand Rapids, November 16-18, 2017
International Society for Third-Sector Research Conference, Amsterdam, July 10-13, 2018
Thursday, June 22, 2017
No one knows what is going to happen with tax reform, which means now is the perfect time to speculate wildly about how Congress may help or hurt tax-exempt nonprofits if and when it actually does something.
Tax Simplification: If Congress follows the President's lead and simplifies in part by sharply increasing the standard deduction, it will make the charitable contribution deduction irrelevant to an even greater proportion of U.S. households as the number of itemizers shrinks significantly. According to an Indiana University Lilly Family School of Philanthropy report, this change alone could reduce charitable giving by an estimated $11 million annually, and if combined with a lower top tax rate of 35% they could together reduce charitable giving by $13.1 billion. To put these figures in perspective, the most recent Giving USA report reported $282 billion in donations from individuals for 2016.
Non-Itemizer Deduction: One proposal to counter this effect is a charitable contribution deduction for non-itemizers, as long advocated for by Independent Sector among others. The Lilly Family School of Philanthropy report estimates that allowing non-itemizers to deduct their charitable contributions would more than offset the negative effect on contributions from the standard deduction increase and rate reduction proposals. That said, it is hard to see how this proposal could have much chance of success given both its revenue cost and the administrative and enforcement complexity it introduces, particularly in an era of reduced IRS examinations. For an analysis of some of these issues, see this October 2016 Urban Institute report.
The Ghost of Rep. Camp: While Dave Camp is not dead he is no longer in Congress, which you would think would limit his influence over current tax legislation. But he did something brilliant when he was driving the tax reform bus as Chair of the House Ways & Means Committee several year ago: he went through the laborious process of actually drafting legislative language and having the result analyzed and scored by the Joint Committee on Taxation. This means that both the specific language and revenue effects of each provision of the Tax Reform Act of 2014 is available to be pulled off the shelf and deployed immediately as part of any current tax reform legislation. As detailed on pages 535-598 of the JCT report, this includes numerous provisions relating to tax-exempt organizations, including a number of limitations on the existing charitable contribution deduction. Especially if some revenue raisers are needed to pay for other aspects of tax reform, I expect to see some of Rep. Camp's proposals reappear in current legislation.
The Charities Helping Americans Regularly Throughout the Year Act of 2017: Given the uncertainty about the content, timing, and even liklihood of major tax reform legislation, it is a good idea to have a backup plan. The CHARITY Act (I do not know where they got the "I" from) is a modest, bipartisan attempt to tweak the existing tax laws for tax-exempt charities. Its provisions include simplifying the private foundation investment tax under section 4940, making donor advised funds eligible for IRA rollover contributions, increasing the mileage rate applicable to personal vehicle use for volunteer charitable activities, creating an exception to the private foundation excess business holdings rules under section 4943 (can you say Newman's Own Foundation?), and an electronic return filing requirement for all tax-exempt nonprofits.
I look forward to months if not years of further crystal ball gazing on these topics.
Journalists have a constant interest in charity private benefit stories, particularly ones with a political angle. And unfortunately they seem to be able to find them. Recent reports raising questions about plain vanilla (non-political) private benefit have focused on a variety of donors and charities, including New England Patriots' quarterback Tom Brady, the James G. Martin Memorial Trust in New Hampshire, and billionaire Patrick Soon-Shiong. But not surprisingly reporters have paid even greater attention to situations relating to politics and politicians, including ones involving the Eric Trump Foundation, Boston mayoral hopeful Tito Jackson, President Trump's chief strategist Stephen Bannon, and the Daily Caller News Foundation. These stories are distinct from ones relating to the use (and possible misuse) of charities for political purposes more generally, such as the recent article regarding the David Horwitz Freedom Center.
I should emphasize that none of these situations have resulted so far in any apparent civil or criminal penalties, and in some instances the facts described may not cross any legal lines. Indeed, the only one of these situations that appears to have drawn government scrutiny so far is the one involving the Eric Trump Foundation, which New York Attorney General Eric Schneiderman has said his office is looking into.
The same cannot be said of three other situations that involve the possible misuse of charitable assets. One, relatively minor situation relates to the admitted access of the Missouri Governor's political campaign to a charity's donor list without apparently the charity's knowledge or permission. Two other situations are more serious in that they each involve hundreds of thousands of dollars. In March, a federal grand jury indicted former U.S. Representative Stephen Stockman and an aide on charges relating to the alleged theft of hundreds of thousands of dollars from conservative foundations to fund campaigns and pay for personal expenses. (More coverage: DOJ Press Release.) And last month a federal jury convicted former U.S. Representative Corrine Brown of raising hundreds of thousands of dollars for a scholarship charity, funds that she then used for her own personal and professional purposes. (More coverage: N.Y. Times.)
The various lawsuits that grew out of the IRS exemption application controversy continue their slow grind with discovery ordered in the Linchpins of Liberty and True the Vote cases (which are before the same judge in the U.S. District Court for the District of Columbia), a protective order keeping the depositions of Lois Lerner and Holly Paz confidential in the class action NorCal Tea Party Patriots case in the U.S. District Court for the Southern District of Ohio, a court-ordered July 24th mediation conference in the same case, and an April 21st hearing on the motion for partial judgment pending in the Freedom Path case in the U.S. District Court for the Northern District of Texas, at which apparently nothing exciting happened as I could not find any media coverage of the hearing. In fact, as far as I can tell no one is paying any attention to these cases at this point except for the parties, their lawyers, a few minor conservative news outlets, and the Bloomberg BNA Daily Tax Report (the last two links are to stories by them (subscription required), and even they ignored the April 21st hearing).
In related news, the Federal Election Commission's inspector general's office recently concluded that FEC employees did not violate any rules when they communicated with the IRS about politically active groups. (More coverage: Bloomberg BNA (subscription required)). And Congress extended the various budget-related provisions it created in the wake of the controversy, including the prohibition on using any funds to issue guidance under section 501(c)(4) for the rest of the current fiscal year (so through September 30, 2017). Finally, the American Center for Law and Justice (which is representing the plaintiffs if some of the above lawsuits) announced that the Tri-Cities Tea Party received a favorable determination letter from the IRS under section 501(c)(4) seven years after filing its application.
As anyone who has represented a house of worship knows, they are subject to many legal exceptions and special rules. One of the more obscure but also more important ones is the exemption of church benefit and pension plans from the incredibly complex requirements of the Employee Retirement Income Security Act of 1974 (ERISA). At issue in Advocate Health Care Network v. Stapleton was whether this statutory "church plan" exemption extends to pension plans offered by church-affiliated nonprofits that run hospitals and other healthcare facilities, as had been longstanding interpretation of the IRS, the Department of Labor, and the Pension Benefit Guaranty Corporation. The plaintiffs in these consolidated cases were current and former employees of the nonprofits who had successfully argued in the lower courts that the exemption is limited to plans established by churches and so the plans established by these church-affiliated nonprofits were subject to ERISA.
In a unanimous opinion (Justice Gorsuch not participating), the Supreme Court reversed the lower court decisions. Based on a careful reading of the statutory text, as well as consideration of the congressional intent with respect to the amendments to that text at issue in the case, the Court concluded that plans maintained by church-affiliated entities for their employees fell within the exemption, regardless of what type of entity had established the given plan. The case therefore resolved the uncertainty created by the lower court decisions in these consolidated cases, which had thrown the scope of the church plan exemption into doubt. While Justice Sotomayor wrote separately to highlight her concerns about the effect of the decision, she agreed with the Court's reading of the statute and so joined the Court's opinion in full. For more detailed coverage, see SCOTUSblog.
Wednesday, June 21, 2017
While the IRS is underfunded and Congress is deadlocked, this does not mean there is no action by the federal government with respect to tax-exempt nonprofit organizations. For starters, the IRS' continues to report data like clockwork, including the always informative Data Book. Highlights from the FY 2016 Data Book include the miniscule examination rate (only 2,956 annual returns examined, including Forms 990, 990-EZ, 990-N, 990-PF, 1041-A, 1120-POL, and 5227), continued strong closures of exemption applications (92,129 for the year, of which the IRS approved 86,406, disapproved 54, and had another 5,669 closed for other reasons, including withdrawals), and now almost 1.6 million organizations recognized as exempt under section 501(c).
The IRS Advisory Committee on Tax Exempt and Government Entities has also had its charter renewed for two more years, and released its sixteenth Report of Recommendations earlier this month. The Committee has been restructured in a way that many of its current members feel is not helpful, as they shared at length in the report. More specifically, the Committee is now divided into subgroups not based on functional areas but instead on subject areas, specifically FICA Replacement Plans, Online Accounts, and, ironically, Future of the ACT.
Finally, the IRS and other federal authorities continue to pursue the most egregious wrongdoing by actors at tax-exempt nonprofits, including criminally. Recent news reports include two major stories along these lines. One involves a federal indictment against a bank officer and her husband who are alleged to have transferred embezzled funds from Bank of America totalling $1.2 million to a variety of charities, possibly in exchange for return payments or other benefits from those charities, according to reports in the Atlanta Journal-Constitution and the Boston Globe. The other, separate situation involves a search by IRS and U.S. Postal Service investigators at the headquarters of televangelist Benny Hinn, as reported by the Dallas Morning News. No further public information is currently available regarding this investigation.
There have been some interesting developments from the states relating to their bread and butter issues of governance, fundraising, and property tax exemptions, as well as a new law in Texas relating to sermons.
With respect to governance, another round of amendments to the New York Nonprofit Revitalization Act went into effect last month (except for one provision that went into effect on January 1st of this year). The amendments clarified a number of important provisions as well as relaxing some of the stricter rules in the original Act, including those relating to related party transactions. For a helpful summary, see this National Law Review article by Pamela Landman (Cadwalader) and Paul W. Mourning (Cadwalader). One interesting nonprofit governance case under the Act is Schneiderman v. The Lutheran Care Network et al., in which New York Attorney General Eric Schneiderman's office challenged the management fees charged by The Lutheran Care Network (TLCN) to one of its affiliates, in part because TLCN had exercised its authority over the affiliate to render the members of the affiliate's board of directors identical to the members of the TLCN board. The trial court rejected the AG office's position, citing the business judgment rule and the presumption that corporate officers and directors act in good faith, regardless of the decision by TLCN to make the affiliate board's membership mirror that of the TLCN board. The March 13th opinion does not appear to be publicly available, but for coverage see the Albany Times Union stories from March 21st, January 13th, and last October 1st.
NY AG Schneiderman office's was more successful in pursuing a fundraising-related claim against the Breast Cancer Survivors Foundation, Inc. (BCSF) and its President and Founder Dr. Yulius Poplyansky. In that case, the resulting settlement closed the "shell charity" BCSF nationwide and resulted in nearly $350,000 to be paid to legitimate breast cancer organizations. The settlement is one result of a broader NY AG "Operation Bottomfeeder" initiative aimed at such charities. The Nonprofit Quarterly noticed a troubling aspect of this case, however: the person apparently behind BCSF was Mark Gelvan, who has "a long history of such activity" and who also was banned for life from such fundraising by none other than the NY AG's office 13 years ago. What additional penalties he may face is unclear, as the investigation into BCSF is apparently continuing.
Turning to property tax exemptions, last year I mentioned that the Massachusetts Supreme Court was considering what counts as sufficiently "religious" use of real property to qualify for exemption as a house of religious worship under Massachusetts law. We now have an opinion in Shrine of Our Lady of La Sallette v. Board of Assessors, and religious organizations in Massachusetts can (mostly) breath a sigh of relief. While exemption statutes are strictly construed, the court rejected a narrow reading of the statute at issue here that would have subject some supporting facilities to tax. In doing so, the court stated "we recognize that a house of religious worship is more than the chapel used for prayer and the classrooms used for religious instruction. It includes the parking lot where congregants park their vehicles, the anteroom where they greet each other and leave their coats and jackets, the parish hall where they congregate in religious fellowship after prayer services, the offices for the clergy and staff, and the storage area where the extra chairs are stored for high holy days." The court then concluded that because the welcome center and a maintenance building both had a dominant purpose connected with religious worship and instruction they were fully exempt from tax, contrary to the position of the Board of Assessors, which had limited full exemption to a church, chapels, a monastery, and a retreat center. It agreed with the Board, however, that a safe house for battered women (leased to a another nonprofit for this purpose) and a wildlife sanctuary did not meet this test (although if the proper application had been filed, they might have been exempt because their dominant purpose was charitable). More coverage: WBUR News.
Finally, one other religious organization-related state law development. Several years ago attorneys for the mayor of Houston subpoenaed the sermons of five pastors who opposed a city ordinance banning discrimination based on sexual orientation during litigation relating to an attempt to repeal the ordinance. She dropped the subpoenas in the face of nationwide criticism, and the ordinance was repealed by Houston voters in November 2015. Nevertheless, the Houston Legislature and current Texas Governor Greg Abbott felt it was important to bar Texas government officials from ever compelling the disclosure of sermons in the future, and so they enacted legislation along those lines last month.
Tuesday, June 20, 2017
Cassady V. (Cass) Brewer (Georgia State), Lisa A. Runquist (Lisa A. Runquist, Attorney at Law), and Elizabeth Carrott Minnigh (Buchanan Ingersoll & Rooney) have published Nonprofit LLCs in the ABA's Business Law Today (March 2017). Here is the introduction:
LLCs increasingly intersect with the nonprofit sector. LLCs are used within the sector as tax-exempt subsidiaries (see, e.g., IRS Announcement 99-102 (requiring I.R.C. section 501(c)(3) organizations to report the activities of their single-member LLCs (SMLLCs) on the organization’s annual IRS Form 990)); as vehicles for charitable giving (see e.g., IRS Notice 2012-52 (allowing contributions to an SMLLC owned by a (c)(3) to qualify for a charitable contribution deduction under I.R.C. section 170); see also Priv. Ltr. Rul. 200150027 (Dec. 14, 2001) (disregarded SMLLC established by (c)(3) to receive contribution of real property subject to potential environmental liabilities)); as private foundation substitutes; and as stand-alone, tax-exempt entities in lieu of nonprofit corporations or unincorporated nonprofit associations (see Reg. § 301.7701-3(c)(1)(v)(A) (submission of application for (c)(3) status constitutes an election to be treated as a corporation for federal income tax purposes)). A few states even have a nonprofit form of the LLC (see Ky. Rev. Stat. Ann. §§ 275.520–540 (2017); Minn. Stat. § 322B.975 (2017); N.D. Cent. Code §§ 10-36-01 to -09 (2017); Tenn. Code Ann. § 48-101-809 (2017)).
Furthermore, because it is so flexible, the LLC has proven useful for hybrid for-profit/nonprofit endeavors (i.e., the benefit LLC and the L3C) (see generally Cassady V. Brewer, Elizabeth Carrott Minnigh & Robert A. Wexler, Social Enterprise by Non-Profits and Hybrid Organizations, 489 Tax. Mgmt. at A-33) and joint ventures between tax-exempt and nontax-exempt entities (see, e.g., Rev. Rul. 2004-51 (attributing “insubstantial” activities of an ancillary LLC joint venture to an exempt member); Rev. Rul. 98-15 (attributing “substantial” activities of a whole hospital LLC joint venture to an exempt member)).
Using a hypothetical to illustrate, this article summarily explores the use of LLCs within the nonprofit sector, including a few words about their use as hybrid for-profit/nonprofit enterprises.
Roger Colinvaux (Catholic) has posted Defending Placed-Based Philanthropy by Defining the Community Foundation, BYU Law Review (forthcoming). Here is the abstract:
The article is about the changing role of the community foundation in conducting philanthropy in the United States. The historic place-based mission of the community foundation is under threat, in part because of competition with national charities that, like community foundations, sponsor donor advised funds (DAFs). The mass-market success of national DAFs is putting pressure on community foundations to conform to a national, passive, individual-based model of advised giving. Community foundations also have become caught up in a legal and policy debate that is directed primarily at national, commercially affiliated DAF sponsors. As a result, community foundations risk becoming subject to rules and regulations devised for others. Part I of the article provides a historical overview of the tax-exempt status of community foundations. Part II shows how the settled wisdom on the tax status of community foundations has been upset by the rise of the nationally sponsored DAF, the extent to which community foundations are different from national DAF sponsors, and whether it would be beneficial to define the community foundation for tax purposes in order to make them more distinct. Part III then considers the possible content of a definition of the community foundation in terms of its purpose, governance, and operations, taking into account longstanding policy concerns about donor control of foundation assets and income accumulations. The article concludes that a strong affirmative Code-based definition of community foundation could help preserve place-based philanthropy.
James Fishman (Pace) has posted Rethinking Riley: Applying Commensurate and Intermediate Scrutiny Standards to Judicial Evaluation of Charitable Solicitation Regulation. Here is the abstract:
In Riley v. National Federation of the Blind, 487 U.S. 781 (1988), the Supreme Court struck down as unduly burdensome and unconstitutional a North Carolina statute requiring professional fundraisers to disclose to those solicited the average percentage of gross receipts actually turned over to the charity for all charitable solicitations conducted in the state within the previous twelve months. The Court applied a strict scrutiny standard of review of the regulated speech, rather than a more deferential intermediate or rational standard of scrutiny. The Court’s reasoning was that the commercial speech elements of the charity’s message were inextricably intertwined with the fully protected educational portions. It also held North Carolina’s regulations governing application of the statute were not narrowly tailored to achieve the state’s valid interests in protecting charities and informing donors how money contributed was spent.
This article disagrees with Riley’s rationale that the educational elements in charitable solicitations are always so interwoven with commercial speech that a governmental regulation that impinges on a charity’s message should always be subject to strict judicial scrutiny review, and as a matter of course protected by the First Amendment. (Fraudulent solicitations do not receive constitutional protection.) The reality is that the educational component of many charitable solicitations is formulaic or an afterthought unconnected to the solicitation message. The article contends that if a charity’s costs of fundraising over several years exceeds eighty-five percent of the amount raised, and the actual amount that is used for the charity’s philanthropic mission is miniscule, should create a rebuttable presumption that the charitable program is not commensurate with the resources contributed to the organization. Absent certain exceptions, such organizations should lose their tax exempt status.
Judicial review of such revocations should be subject to a lesser, intermediate standard of scrutiny of review by the courts. There are both common law and federal tax precedents for using a commensurate standard in evaluating whether a charity serves a public purpose relative to its resources and abilities. This approach should pass constitutional muster, and will protect the public from deception and manipulation.
The hybrid organizational forms designed with social enterprises in mind have proven to be hothouse flowers. Flourishing in state legislatures, even those with the most distinguished pedigrees—such as Delaware’s public benefit corporation—have so far failed to thrive in the marketplace. Fortunately, hybrid financial instruments offer a source of strength and stability that can help social enterprise to take root. This Article examines the valuable role that financial instruments can play in providing social enterprises with the capital they need to grow. Debt with equity features and equity with debt characteristics constitute the lion’s share of such financial tools. More exotic financial tools, including some tailor-made for social enterprise, can be deployed alongside hybrid debt and equity instruments that any venture might use. To set the stage, Part I provides a brief overview of the achievements of the benefit corporation to date. These include their incredible success in state legislatures and their consciousness-raising about the legitimacy and value of companies dedicated both to achieving profits and generating social good. Part II considers next steps. In particular, it lays out the challenges faced by benefit corporations and other social enterprises seeking capital to enable them to survive and scale. Part III, which makes up the bulk of the essay, considers a variety of financial tools that could be harnessed to meet these challenges. Although common stock and standard corporate bonds will often fail to align the interests of entrepreneurs and investors in double-bottom line ventures, a variety of less conventional financial instruments offer considerable promise.
This Article uncovers and names a phenomenon of pressing importance for healthcare policy and religious liberty law: the rise of zombie religious institutions without attachments to churches or associations of religious people. It argues that when religion and commerce combine, commercial transactions shape religious compliance and identity. Contract creates religion—sometimes in perpetuity—for facilities that are not, or never have been, religious and for providers who do not share the institution’s religious precepts. “Religious” institutions far-removed from the paradigm of the church populate the marketplace.
The Article details religion’s spread across healthcare through affiliations, mergers, and—most surprisingly—sales of hospitals that continue religious practice after their connection to a church ends. Secular and religious, public and private, for-profit and non-profit hospitals comply with religion by contract. Private law impedes public policy by expanding the universe of institutions eligible for religious exemption from otherwise applicable laws, including employment antidiscrimination law and the Employee Retirement Income Security Act. As the category of religious institution loses its specialness, theories of religious institutionalism founder. The presumption of autonomy of religious institutions from regulation cannot survive in the marketplace, where religious identity can be bought and sold.
Tuesday, June 13, 2017
Massachusetts Representative David Nangle recently gave more details on his proposal to levy taxes on nonprofits. The Bill would require nonprofits to pay their share of property taxes if the combined compensation for their top-five highest paid employees exceeds $2.5 million.
Nangle claims that his Bill could reach hundreds of nonprofits in the state, with hospitals and universities having the largest impact. However, places of worship and religious organizations would remain exempt. Additionally, individual cities and towns can elect to follow the new Bill or not.
Nangle’s rationale behind the Bill is simple, “If they’re getting paid like Fortune 500 companies, they should be taxed like Fortune 500 companies.”
David A. Brennen
Jonathan Rockoff from the Wall Street Journal brought to light the decline in prostate-cancer drug sales after a federal investigation revealed that drug companies were making huge donations to nonprofits who helped patients cover the expense of these drugs.
According to the article, a mere $1,000,000 donation can lead to upwards of $21,000,000 in additional sales for the drug companies. The article is short, but a very interesting read. Follow the above link to see for yourself.
David A. Brennen