Thursday, September 22, 2016
I just wrote this CNN Op Ed comparing the two foundations. It begins:
Journalists and commentators across the political spectrum have subjected both the Bill, Hillary & Chelsea Clinton Foundation and the Donald J. Trump Foundation to a withering barrage of criticisms. Without a doubt, both foundations and their managers, including Ms. Clinton and Mr. Trump, have made mistakes. The critical question, however, is whether those mistakes are illegal.
Fan Fei (Michigan), James R. Hines Jr. (Michigan), and Jill R. Horwitz (UCLA) have published Are PILOTs Property Taxes for Nonprofits?, 94 Journal of Urban Economics 109 (2016). This is a significantly revised version of the paper with the same title that they posted on SSRN last year. Here is the abstract:
Nonprofit charitable organizations are exempt from most taxes, including local property taxes, but U.S. cities and towns increasingly request that nonprofits make payments in lieu of taxes (known as PILOTs). Strictly speaking, PILOTs are voluntary, though nonprofits may feel pressure to make them, particularly in high-tax communities. Evidence from Massachusetts indicates that PILOT rates, measured as ratios of payments to the value of local tax-exempt property, are higher in towns with higher property tax rates: a one percentage point higher property tax rate is associated with a 0.2 percentage point higher PILOT rate. PILOTs appear to discourage nonprofit activity: a one percentage point higher PILOT rate is associated with 0.8% lower real property ownership by local nonprofits, 0.2% lower total assets, and 0.2% lower revenues of local nonprofits. These patterns are consistent with voluntary PILOTs acting in a manner similar to low-rate, compulsory real estate taxes.
Thursday, September 15, 2016
The Chicago-Kent Law Review has posted its Symposium Issue on Nonprofit Oversight Under Siege:
Dana Brakman Reiser, Brooklyn Law School
91 Chi.-Kent. L. Rev. 843 (2016).
Exile to Main Street: The I.R.S.’s Diminished Role in Overseeing Tax-Exempt Organizations
Evelyn Brody, IIT Chicago-Kent College of Law
91 Chi.-Kent. L. Rev. 859 (2016).
Politics, Disclosure, and State Law Solutions for 501(c)(4) Organizations
Linda Sugin, Fordham Law School
91 Chi.-Kent. L. Rev. 895 (2016).
Fragmented Oversight of Nonprofits in the United States: Does it Work? Can it Work?
Lloyd Hitoshi Mayer, Notre Dame Law School
91 Chi.-Kent. L. Rev. 937 (2016).
The Charity Commission for England and Wales: A Fine Example or Another Fine Mess?
Debra Morris, School of Law and Social Justice, Liverpool
91 Chi.-Kent. L. Rev. 965 (2016)
European Non-profit Oversight: The Case for Regulating From the Outside In
Oonagh B. Breen, Sutherland School of Law
91 Chi.-Kent. L. Rev. 991 (2016).
Australia – Two Political Narratives and One Charity Regulator Caught in the Middle
Myles McGregor-Lowndes, Queensland University of Technology
91 Chi.-Kent. L. Rev. 1021 (2016).
Reforming the Regulation of Political Advocacy by Charities: From Charity Under Siege to Charity Under Rescue?
Adam Parachin, Western University
91 Chi.-Kent. L. Rev. 1047 (2016).
Does Work Law Have a Future if the Labor Market Does Not?
Noah D. Zatz, UCLA School of Law
91 Chi.-Kent. L. Rev. 1081 (2016).
Looks like a fascinating set of articles and outstanding group of authors (including our own Lloyd Mayer)!
Wednesday, September 14, 2016
In a CNN interview on Tuesday, Schneiderman said his office had now brought Trump's charitable foundation under scrutiny.
"My interest in this issue really is in my capacity as regulator of nonprofits in New York state. And we have been concerned that the Trump Foundation may have engaged in some impropriety from that point of view," the elected Democratic official said.
He added: "We have been looking into the Trump Foundation to make sure it's complying with the laws that govern charities in New York." He did not elaborate on what wrongdoing Trump's nonprofit might have committed.
Here's hoping that this election season doesn't completely destroy the public's confidence in our sector.
Sunday, September 11, 2016
Nonprofit Quarterly reports that Wounded Warrior Project, America's largest veterans charity, has lost $90 million to $100 million in donations, or 25 percent of its donations revenue, following reports of extravagant spending on overhead and Senate Judiciary Committee investigation earlier this year.
While the organization’s board was still in denial mode, donors began to express their disappointment, with some declaring that they would not give themselves and that they would no longer organize others to give. It was inevitable that there would be some loss, but $100 million is a lot of donations. It would clearly take a big shift to recapture the trust of donors, and Linnington seems to be all about making radical moves to refocus and rebalance the organization.
Current cost-cutting measures include about 85 people (15 percent of the agency’s workforce) being laid off, including 50 percent of its executive staff, and the closing of nine satellite offices.
The Boston Globe reports the story of a longtime librarian at the University of New Hampshire who lived a frugal lifestyle and left his $4 million estate to the university:
Robert Morin worked nearly 50 years at the University of New Hampshire library and never seemed to spend any money.
He lived alone, rarely bought clothes, had Fritos and soda for breakfast, drove a 1992 Plymouth, and spent spare time reading almost every book — in chronological order — that had been published in the United States from 1930 to 1938.
Now, more than a year after his death at age 77, a lifetime of frugality has become UNH’s unexpected gift: Morin left his alma mater his entire estate of $4 million — a gold-plated nest egg that few people knew he had.
While a gift of this size may have allowed Morin to require that a building or other area on campus bear his name, Morin's restrictions imposed on the use of the gift by the university were as modest as his lifestyle.
The university will use $2.5 million from the estate on an expanded career center and $1 million for a new video scoreboard at the football stadium. An additional $100,000 will go to the university’s Dimond Library, the only gift specified by the will.
[Morin's financial advisor,] Mullen said he spoke with Morin about using some of the money to fund a scholarship related to library science but said his client wanted UNH to spend almost all of the gift in any way it chose.
Thursday, September 8, 2016
Ji Ma (PhD student) and Assistant Professor Sara Konrath, both of Indiana University-Purdue University Indianapolis (IUPUI) - Center on Philanthropy, have posted their research paper, Thirty Years of Nonprofit Research: Scaling the Knowledge of the Field 1986-2015, to SSRN. Below is the abstract for their paper:
This empirical study examines knowledge production between 1986 and 2015 in the research field of nonprofit and philanthropic studies using science mapping and network analysis. This is essential to understand the “Third Sector” better, which along with the business sector and government, forms and underpins the function of society at large.
Results suggest that scholars in this field have been actively generating a considerable amount of literature. The rapidly growing intellectual base suggests a solid backing for continuing development of this field as a new discipline. Knowledge produced in this field is not only growing in number, but also forming several main themes which have been actively developed since the mid-1980s – a signal of knowledge cohesion. Our findings are significant from numerous perspectives. The study provides empirical evidence for this field developing into a new discipline, and its future advancement faces a critical challenge: the lack of geographic and cultural diversity resulting from the domination of research taking place in the “Anglosphere.” This study also emphasizes the importance of new paradigms in mitigating the tension between theory and practice – a challenge commonly faced by academic disciplines.
Methodologically, our paper provides an example of applying network analysis and science mapping in studying the knowledge of a new social science field. Pedagogical implications, limitations, and future directions are also discussed.
Monday, August 29, 2016
Big news from Monongalia County, West Virginia (and I don't mean its party school ranking of number 2... ), but add West Virginia University to the list of charitable institutions making PILOT (payment in lieu of taxes) payments. WVU has done a significant amount of development in downtown Morgantown (yes, we have a downtown...) through private-public partnerships. As a result, a good deal of private property has gone off the tax rolls in this standard issue university town.
Of course, the issue of PILOTs has received a significant amount of discussion as of late (including on this website), as strapped state and local communities look for alternative sources of revenue. For more information, I strongly recommend starting with the Urban Institute website, which has a number of studies on PILOT issues (many of which are authored or co-authored by Evelyn Brody.) In that regard, this really shouldn't be much in the way of new ground... but...
(I am totally dating myself here...)
What I find interesting is that WVU is a public university. I've been searching on the interwebz (to no avail) for more information on how many public institutions - presumably, universities and hospitals - have agreed to PILOTs. (Anyone have any info? I found this helpful article by Langley, Kenyon and Bailin from the Lincoln Institute of Land Policy, circa 2012, that has a number of appendices - a very quick review doesn't seem to show any public institutions.) Part of the rationale for a private nonprofit to enter into a PILOT agreement and voluntarily pay not-taxes is that the alternative could be much, much worse. If a government changes the applicable laws granting nonprofit property tax exemption, the nonprofit will have little control over what happens next, so the devil you know and negotiate is probably better than what is behind Door Number 2.
I would think that with a public university, that calculus would be much, much different. After all, a public university is branch of government, it seems as if it would be much more difficult to muck with the property tax exemption for the University itself - both legally and politically. According to the press release from WVU, its 50 year payment agreement applies only to "private commercial establishments operating on University property for activities that are not a critical part of or integral to serving the academic needs of students." Therefore, while there may be limits on the ability to change the University's tax exemption, query how much play actually exists with attacking the property tax exemption for the University's leased property? (see section 10 versus sections 14 or 17, for example).
Betsy Schmidt publishes second edition of "Nonprofit Law: The Life Cycle of a Charitable Organization"
Betsy Schmidt has published the second edition of her helpful and well-received "Nonprofit Law: The Life Cycle of a Charitable Organization." From the publisher's website . . .
In a concise and readable format, Nonprofit Law, 2nd Edition provides up-to-date information about the legal issues that can arise at every turn—from inception to termination—of a Section 501(c)(3) organization. This second edition continues and builds upon the comprehensive features of the first edition, including:
- A reader-friendly presentation that does not assume earlier background with tax, trusts, or corporations
- A balanced treatment between theory and practical reality
- Cradle-to-grave organization of topics
- Notes, questions, and problems in each chapter that add context to the text
- All relevant statutes and regulations within the text
- Optional exercises for creating a virtual nonprofit, which become the basis for further hypothetical questions.
Highlights of the second edition include:
- Examples of familiar organizations, from Catholic Dioceses to the American Red Cross, grappling with critical issues
- Consideration of for-profit social enterprises as alternatives to nonprofits
- Thorough exploration of the policy implications of nonprofit regulation
- An explanation of the controversies surrounding nonprofits’ entrance into politics and the IRS’ response.
Saturday, August 27, 2016
Anne Choike has posted Examining Gallery-Supported Art Exhibitions on SSRN with the following abstract:
For-profit art galleries are making news for the donations they provide to nonprofit art organizations to support exhibitions of artists represented by such galleries. Yet nonprofit art organizations are committed to advancing art for the public interest, not for private profit. This Article examines whether there are any meaningful limits on gallery donations that support art exhibitions at nonprofit arts organizations, focusing on the legal framework governing federal tax-exempt status, as well as the self-regulatory rules and informal norms of the art industry. Does the existing regime allow gallery-supported art exhibitions or are they activities that do not further nonprofit art organizations’ missions? What short-term and long-term solutions are available and appropriate in light of the causes and context of gallery-supported art exhibitions? These questions are animated by the broader dialogue about equitable access to publicly funded resources, with the answers having important implications for what it means to promote art that is representative of American society.
--Eric C. Chaffee
Wednesday, August 24, 2016
Eduardo M. Penalver, Laura Spitz, Elizabeth Brundige and Lucia Domínguez Cisneros have posted U.S. Nonprofit Activity in Cuba: The Cuban Context on SSRN with the following abstract:
The thaw of U.S.-Cuba relations and the reestablishment of diplomatic ties between the United States and Cuba present an opportunity for nonprofit organizations based in the United States seeking to increase their engagement with Cuba. U.S. regulatory restrictions on nonprofit activity have decreased dramatically over the past two years. As a result, interest in undertaking projects in Cuba among U.S. nonprofits has increased significantly. Although the scope of potential opportunities is as yet unknown, this paper seeks to advance the conversation by answering the following questions: What is the current state of U.S. and non-U.S. nonprofit activity within Cuba? What are the Cuban legal and other constraints that affect nonprofit activity in the country? What recommendations might we offer for U.S. nonprofits that are interested in pursuing work in Cuba, in light of the constraints identified above? And finally, what legal, policy or other measures in Cuba might help address these constraints and facilitate increased nonprofit engagement?
--Eric C. Chaffee
Monday, August 22, 2016
Xue Tan, Yingda Lu and Yong Tan have posted Why Should I Donate? Examining the Effects of Reputation, Peer Influence, and Popularity on Charitable Giving Over Social Media Platforms on SSRN with the following abstract:
With the growing popularity of social media, social networking sites have become an important channel for online donor engagement and charitable fundraising. Many crowd-based donation platforms have integrated social functions to encourage donors to announce their donations in social media. Some social networking sites, like Facebook, initiate their own charitable campaigns by collaborating with nonprofit organizations. Despite the great theoretical and practical values, social media users’ motivations for charitable giving are underexplored. Using individual-level data from a microblogging platform where a donation service is embedded, we investigate how individual donation decisions are influenced by reputation incentive design, peer effects, and popularity effects. We find that despite the platform designer’s desire to improve fundraising performance, higher visibility of donors’ contributions may have negative impact on fundraising. Peer effects are found to be positive and, hence, provide a potential solution to the free-rider problem. Finally, it is observed that while most users crowd to popular projects, a group of users who exhibit leadership features crowd out from popular projects. Investing more fundraising effort on this crowding-out group may alleviate the rich-get-richer problem.
-- Eric C. Chaffee
Thursday, August 18, 2016
Yesterday's NonProfitTimes reported that the OneOrlando Fund has begun accepting claims from victims and families of victims of the June 12 Pulse nightclub shooting that left 49 dead and dozens more injured. According to fund administrator, Kenneth Feinberg, the entirety of the fund -- estimated at $23 million -- will be disbursed. According to the OneOrlando website, to be eligible, claims must be postmarked by September 12. Claim forms can be found on the site.
Vaughn E. James
Wednesday, August 17, 2016
In 2003, four men came together to form Wounded Warrior Project, a nonprofit 501(c) organization that offers a variety of programs, services and events for wounded veterans of the military actions following September 11, 2001. The organization's website boasts that this charity and veteran service organization "provides free programs and services focused on the physical, mental, and long-term financial well-being of this generation of injured veterans, their families and caregivers." The charity urges its supporters to donate to its causes, assuring them that their tax deductible donations enable the organization to "help thousands of injured warriors returning home from the current conflicts and to provide assistance to their families." The website goes on to state that "[a]s the number of wounded [veterans] steadily increases, it is easy to see how the needs of these brave individuals also increase."
In March, CBS News reported that while Americans were donating hundreds of millions of dollars each year to the charity, Wounded Warrior Project was spending 40 to 50 percent of these donations on overhead, including extravagant parties. By comparison, CBS News reported, other veterans charities have overhead costs of only 10 to 15 percent.
Shortly afterwards, the organization's Board of Directors fired Chief Executive Officer, Steven Nardizzi, and Chief Operating Officer, Al Giordano.
Yesterday's NonProfitTimes reported on the next step for the organization: a restructuring plan, According to the Times, details of the restructuring plan are expected to be announced next month. But some details can already be gleaned from the organization's recently-released IRS Form 990 and consolidated financial statements for the fiscal year ended September 30, 2015. In notes to the consolidated financial statements, the organization states:
Negative media stories in January 2016 regarding the Organization prompted inquiries and requests for documents from Senator Grassley on behalf of the Committee on the Judiciary and from other parties. The Organization responded to these inquiries and requests, and management does not believe they will have a material adverse effect on the organization’s financial position, results of operations or cash flows.
The Organization is in the process of evaluating programs and services to ensure that they are delivered with even greater efficiency, as well as assessing its organizational structure to ensure that it maximizes all resources available. Management anticipates that certain roles will be eliminated as a result of this assessment and details of the restructuring will be announced in September 2016. Management does not believe the restructuring will have a material adverse impact on the accompanying consolidated financial statements.
The Times also reports that in recent weeks, new CEO Michael Linnington, has made reference during interviews to anticipated pay and staff cuts.
September will soon be here; we shall discover then just what Wounded Warriors Project will do to recover its image, stature and standing.
Vaughn E. James
Tuesday, August 16, 2016
An op-ed in last Saturday's New York Times caught my eye and has me thinking deeply. In To Get to Harvard, Go to Haiti?, Frank Bruni discusses "the persistent vogue among secondary-school students for so-called service that's sometimes about little more than a faraway adventure and a few lines or paragraphs on their applications to selective colleges."
Bruni is here discussing the growing trend among American college applicants to claim on their college applications for admission that they have done volunteer work or gone on mission trips to Central America and Africa when in reality all they have done is spent as little as a week -- if all that -- "helping to repair some village's crumbling school or library, [only] to return to their comfortable homes and quite possibly write a college-application essay about how transformed they are."
Bruni argues that this troubling trend "turns developing-world hardship into a prose-ready opportunity for growth, empathy into an extracurricular activity." Moreover, Bruni contends that this trend
reflects a broader gaming of the admissions process that concerns [him] just as much, because of its potential to create strange habits and values in the students who go through it, telling them that success is a matter of superficial packaging and checking off the right boxes at the right time.
Like Bruni, I am appalled at this growing trend among students. I am equally appalled at the trend among church-going people who come to me asking for my help in funding their mission trips to Central and South America, Africa and the Caribbean. I question them closely about these trips. Thus far, in answer to my question, "Where will you live during your stay?", every budding missionary has responded, "In a hotel." My check book has remained closed to these wonderful missionaries.
Vaughn E. James
Friday, August 12, 2016
Oonagh Breen (Dublin) has posted European Non-Profit Oversight: The Case for Regulating from the Outside In, 91 Chicago-Kent Law Review (forthcoming 2016). Here is the abstract:
When it comes to the regulation of non-profits, the European Commission experiences many of the same pressures and constraints faced by national charity regulators. It suffers, however, from an added disadvantage in that, arguably, it lacks jurisdictional competence to regulate non-profits qua non-profits. This article explores the consequences of the Commission’s unsuccessful attempt to secure the passage of its proposal for a European Foundation Statute (‘EFS’). Notwithstanding the European Council’s inability to muster the necessary Member State unanimity required to pass the proposal and its subsequent demise, the Commission is still dogged by the problems it identified as giving rise to the need for the EFS in the first instance. Against this background, Part I reviews the rationale for the EFS proposal, the political concerns that left it vulnerable to veto and the structural challenges faced by the Commission in legislating for non-profits at a European level. The argument is advanced that extant a purely functional approach, European regulation of nonprofits from ‘the inside out’ is difficult in the absence of a valid treaty basis.
Part II proceeds to examine recent NGO attempts to influence the Financial Action Task Force (‘FATF’) reform process (supported by the European Commission) and to demand a fairer process under FATF Recommendation 8 for dealing with NGOs. The European Commission’s role in assisting NGOs to bring pressure on the FATF to be more accountable and transparent in its dealings presents an interesting vignette of one regulator laying siege to another for the greater good of better non-profit oversight. Arguably, the Commission’s attempts at ‘regulating from the outside in’ has led to it demanding a higher level of transparency of the FATF than it has been willing to provide to NGOs itself in the past, while simultaneously enhancing Commission-NGO relations. The article concludes that it is now timely for the European Commission to be alert to the possibilities of regulating from the outside in on occasions when it may not be so possible to regulate from the inside out.
Johnny Rex Buckles (Houston) has posted The Sexual Integrity of Religious Schools and Tax Exemption on SSRN. Here is the abstract:
Many private universities and other schools adhere to religiously grounded codes of conduct that embrace heterosexual monogamy as the sole moral context for sexual relationships. The federal income tax exemption of these schools has been questioned following the recent Supreme Court opinion of Obergefell v. Hodges. In Obergefell, the Supreme Court held that the right to marry is a fundamental constitutional right that same-sex couples may exercise. The relevance of this decision to the federal tax status of private religious schools arises from another Supreme Court decision, Bob Jones University v. United States. The Court in Bob Jones held that two schools with racially discriminatory policies as to students were not entitled to exemption from federal income tax because the policies violate established public policy. The issue now is whether the sexual conduct policies of private religious schools violate the established public policy of the United States following Obergefell. After reviewing Bob Jones and surveying the application of the public policy doctrine by the IRS and the courts, this article argues that, regardless of the factual context of a controversy in which the IRS seeks to invoke Bob Jones to deny or revoke federal income tax exemption, the public policy doctrine should be narrowly construed. Applying a suggested framework for limiting the public policy doctrine coherently, this Article argues that schools maintaining sexual conduct policies that prohibit sexual activity inconsistent with their religiously informed, traditional view of marriage remain tax-exempt after Obergefell. Apart from the proposed framework, this Article further explains why Obergefell’s analytical approach, language and tone are inconsistent with applying Bob Jones to the disadvantage of religious schools that maintain sexual conduct policies.
Brian Galle (Georgetown) has posted Corporate Compliance without Enforcement?: Private Foundations and the Uniform Prudent Management of Institutional Funds Act on SSRN. Here is the abstract:
I examine the determinants of nonprofit corporate compliance with law using a large panel of over one million firm-years. Despite the almost total absence of any credible enforcement threat, I find widespread compliance. I exploit rolling state adoption of the Uniform Prudent Management of Institutional Funds Acts, which lifted some existing limits on firm spending, but which applied to some but not all firms within each state. This allows the use of triple-difference estimates that control for changes in local norms and economic conditions. Interacting the triple-difference factors with other predictors of compliance, I find no correlation between compliance and enforcement intensity, but some evidence that compliance is correlated with firm culture and reliance on accountants. I argue that my findings are among the first to discover compliance in the absence of a meaningful formal deterrence mechanism. Further, my findings have important implications for the governance of charitable organizations.
Górski: The Case for Research on Regulatory Neutrality Toward Various Shades of Social Entrepreneurship
Jędrzej Górski (The Chinese University of Hong Kong) has posted The Case for Research on Regulatory Neutrality Toward Various Shades of Social Entrepreneurship on SSRN. Here is the abstract:
This working paper discusses the case for research on regulatory policy toward social entrepreneurship and specifically pertains to regulatory policy toward social ventures. The main theme of this working paper is the regulatory neutrality toward various shades of social entrepreneurship and its secondary subject is the convergence of policies toward THE private and public sectors. As such, this working paper touches upon company law, tax law and commercial aspects of the regulation of activities conducted by charities, NGOs, etc.
In recent decades, the charitable landscape worldwide has undergone a significant transformation first with respect to using business methods in support of social missions (social enterprises) and, second, with regard to combining social missions with make-money paradigm (social ventures). The austerity measures in the Western hemisphere, commercialisation/privatisation of state-owned enterprises in post-communist countries and an economic slowdown in Asian “tiger” nations all necessitated a rise of private charity self-supported by social entrepreneurship as a substitute for governmental action. Social ventures have been proliferating in this environment, yet have suffered from public-policies (fiscal environment, inflexibility of the design of business organisations) confined to not-for-profit social enterprises, and lawmakers everywhere have largely failed to address this problem.
The time is therefore ripe for revisiting representative policy models, and to defend the claim that efficient regulatory policies can be neutral toward various shades of social entrepreneurship and well integrate social ventures to the overall benefit of society. A dogma (that not-for-profit social enterprises can better substitute for governmental action than their for-profit counterparts because only the former can enjoy specific governmental supports and receive private donations) shall be dispelled by offering a number of flexible mechanism allowing rewarding private mission-driven business organisations according to the scope of their mission and regardless of their not-for-profit status.
Such research essentially demands perusal of policy and legislative documents produced roughly in the post-2005 period in a number of jurisdictions (mostly Anglo-Saxon like the UK, Vermont followed by other states, British Columbia, but also South Korea) where lawmakers took on the issue of social ventures but, all as one, adopted only fragmentary solutions which did not disenchant the for-profit or not-for profit binary mindset. Identified problems (definition of charity, limits of the scope of business operations of social enterprises, non-distribution constraint etc. on the side of not-for-profits and non-deductibility of mission-related expenses etc. by for-profits) need to be deconstructed one by one toward a complex system reflecting the entire spectrum of social entrepreneurs and based on the principle that the more mission the more governmental privileges, yet more supervision.
Such a complex system would include a number of novel solutions. The commonly accepted general profit-tax exemption for not-for-profits shall be discarded in favour of wider deductibility of charitable expenses combined with exemption of donations (including charitable price premiums in excess of market prices paid by donors for commercial goods or services). The non-distribution constraint (banning dividends or equity rights in dissolution) shall strictly reflect paid-in donations thereby balancing the interests of investors and donors. Finally, a simplistic supervision system requiring periodical reporting to public authorities shall be discarded in favour of a system balancing interests of public and private (donors) stakeholders in the fashion of corporate governance in public companies.
Such solutions could be universally applicable and could be used not only for private social entrepreneurship but also for preserving the social functions of gradually privatised state-owned enterprises.