ABA TaxSection Midyear Meeting Panel: Evolving Constraints on Tax Administration

tax-consultant-3094808_1920 With a major new tax act to implement, it would be nice if the IRS had a positive image, a steadily increasing budget, and clarity on how to best promulgate guidance. Sadly none of that is true. The IRS public image after the Tea Party crisis in 2013 is poor; its budget has lagged behind its needs over the past 5 years; and, the legal landscape in which it enacts guidance has begun to seriously shift particularly over the past 10 years with cases like Mayo, Altera and Chamber of Commerce making it difficult to know the best strategy for publishing useful guidance on the new 2017 Tax Act.

The Teaching Taxation committee, held a panel this past Friday at the ABA Tax Section’s Midyear Meeting called Evolving Constraints on Tax Administration to consider this landscape the IRS finds itself in at the start of 2018. Our panel included Caroline Ciraolo, a partner at Kostelanetz & Fink, LLP and former Acting Assistant Attorney General in the DOJ Tax Division, James R. Gadwood, Counsel, Miller & Chevalier, Kristin E. Hickman, law professor at Minnesota Law School, and fellow Surly blogger Leandra Lederman, professor at Indiana University Maurer School of Law. Continue reading “ABA TaxSection Midyear Meeting Panel: Evolving Constraints on Tax Administration” →

GOP 2017 Tax Act Forces Nonprofits to Pay UBIT on Some Fringe Benefits

By: Philip Hackney road-3036620_1280

In the new tax act of 2017, Congress imposed an unrelated business income tax on transportation, parking, and athletic facility fringe benefits that a nonprofit provides to its employees. I write because I suspect there are universities or hospitals or other large nonprofits out there (pension funds maybe) that offer these types of fringe benefits that are unaware that they must pay UBIT on the total value of these benefits at the end of the year. The law went into effect for taxable years starting January 1, 2018.

In Section 13703 of the bill, Congress promulgated the following new rule: UBIT “shall be increased by any amount for which a deduction is not allowable under this chapter by reason of section 274 and which is paid or incurred by such organization for any qualified transportation fringe (as defined in section 132(f)), any parking facility used in connection with qualified parking (as defined in section 132(f)(5)(C)), or any on-premises
athletic facility (as defined in section 132(j)(4)(B)).” Continue reading “GOP 2017 Tax Act Forces Nonprofits to Pay UBIT on Some Fringe Benefits” →

IRS ‘Targeted’ Liberal Organizations and After All These Years TIGTA is Still Wrong

By: Philip Hackney

The Treasury Inspector General for Tax Administration (TIGTA) just issued a new report four years and five months after rebuking the IRS for using “inappropriate” criteria to select applications for tax exempt status for scrutiny. In the first report, TIGTA rebuked the IRS for pulling the applications of conservative leaning organizations for greater scrutiny.

This time it considers the fact that the IRS over a period of 10 years used liberal leaning names such as ACORN, Emerge, and Progressive as criteria for pulling applications for greater scrutiny. This resulted in the IRS applying greater scrutiny to these organizations. Some might say the IRS targeted these organizations. Those organizations appear to have faced long wait times as well, and sometimes some questions of limited merit.

I write this piece to make two points: (1) had this information been in the initial report, I don’t think we would have had the “scandal” that shook the IRS and the political world of the time; and (2) the TIGTA report built its primary claim on a garbled faux legal postulate. The original report did terrible damage to the IRS and individuals by failing on both of these fronts. Continue reading “IRS ‘Targeted’ Liberal Organizations and After All These Years TIGTA is Still Wrong” →

White Nationalists Groups are Charitable? Apparently so According to IRS (Cooking the Books Podcast)

By: Philip Hackney, December 22, 2016

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Sam Brunson and I discuss an AP story “White Nationalists Raise Millions with Tax-Exempt Charities,” by Michael Kunzelman on a Cooking the Books Podcast today on Sparemin. The recording quality today is not the best, but I really liked the conversation a lot and hated to throw it away. I try to summarize it a bit below. Give it a listen. Let us know what you think.

Many might be surprised that these organizations that educate people about the righteousness of the superiority of the “white race” are operating openly under IRS approval as tax exempt organizations. It means that the US government effectively subsidizes the operation of these organizations through tax deductible charitable contributions and exemption for any income they earn.

How do they qualify? The primary argument must be that they are educational. The difficulty with this claim is that the IRS had success in the 1980s and 1990s in denying the tax exemption of two similar groups the National Alliance and the Nationalist Movement. This IRS CPE talks about those cases. Continue reading “White Nationalists Groups are Charitable? Apparently so According to IRS (Cooking the Books Podcast)” →

Podcast: Require Candidates to Disclose Tax Returns?

By: Philip Hackney

On this morning where we have a newly elected president, Sam Brunson and I discussed in a #CookingtheBooks Podcast whether Congress should pass legislation requiring a presidential candidate to disclose some number of years of tax returns in order to run for office.

Sam argued here on the blog a couple of days ago that this should be a requirement. I agree with him, but neither of us believe the failure to disclose those returns was a critical factor in a Trump win. We just think it tells the American people something important about the person who will be leading the country.

We also discussed a little bit about what tax policy might look like in a Trump administration. Sam, ever the optimist, is worried but not terribly about Trump tax policy. Feeling a bit pessimistic myself this morning, and having lived through 8 years of Governor Jindal in Louisiana and very afraid that this will lead to enormous deficits.

In the end, we look very much forward to critiquing Trump tax policy as much as we would have critiqued Clinton tax policy.

Anyway, give the podcast a listen and let us know what you think. We enjoy the medium as another channel for discussing tax policy.

Yale Daily News Endorsed a Candidate -Political Campaign Intervention?

By: Philip Hackney, Oct. 31, 2016

Last week the Yale Daily News a college newspaper run by students associated with Yale University endorsed Hillary Clinton for president. While a newspaper endorsing a candidate for president is usually the ordinary course of business, when that newspaper is a section 501(c)(3) organization, its an issue. A charitable organization is absolutely prohibited from intervening in a political campaign.

On Friday October 28, I joined my tax prof friends and many surly bloggers Ben Leff, Sam Brunson, David Herzig and Andy Grewal to discuss in a Sparemin Podcast whether YDN put its exemption at risk or not. We had had a dispute on twitter and decided that a podcast discussion might enhance our understanding of one another’s views. It certainly helped me. Give it a listen yourself. Let us know what you think. Continue reading “Yale Daily News Endorsed a Candidate -Political Campaign Intervention?” →

Trump’s Abuse of Trump Foundation — Criminal Tax Implications?

By: Philip Hackney, Oct. 3, 2016

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Much attention is being paid to how Donald Trump could have amassed a $900 million NOL in the mid 90s. I remain laser-focused on the Donald J. Trump Foundation. For this blog post I ask the question: could Mr. Trump’s misuse of the private foundation that he leads result in criminal sanctions under tax law?

I think there is enough evidence to open a criminal investigation into his activities. Nevertheless, a criminal prosecution is highly unlikely for both political reasons and issues of proof (ignorance of the law is a defense). Still, I think the IRS has a duty to open an investigation under the egregious set of facts I lay out.

Here is the important thing to keep in mind as you consider the arguments I lay out in this post: Donald Trump does not own the Foundation and its property does not belong to him. It does not matter from whom the money came. He is the president of a nonprofit organization that is entrusted with money to be used for charitable purposes that benefit the public. Continue reading “Trump’s Abuse of Trump Foundation — Criminal Tax Implications?” →

Trump Pays $2,500 Excise Tax: Is that Enough?

By: Philip Hackney

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A couple of months ago, I wrote about the tax consequences of the Donald J. Trump Foundation paying $25,000 to the Pam Bondi campaign for attorney general in Florida in 2013. While most folks are focused on whether the payment was a bribe, I still see signs of a mismanaged charitable organization. I suggested that the political contribution could lead to the Foundation losing its exempt status and should require it to pay some excise taxes. I also said that there was enough questionable information for the IRS to open an audit of the Foundation. Well, last week, David Fahrenthold reported that Donald Trump recently paid $2,500 to the IRS as a tax for that impermissible political contribution made by the Foundation. This action leaves a lot of odd unanswered questions that I write about here.

Jeffrey McConney, the senior vice president and controller of the Foundation, told the Washington Post that Trump himself filed paperwork with the IRS alerting them to the improper political contribution from the Foundation, paid a 10% excise tax, and returned the $25,000. McConney states that the Foundation believes this should end the problem because the Foundation has done everything it has “been instructed to do”. While some have assumed that the IRS had communicated with the Foundation, it is not clear who did the instructing. Continue reading “Trump Pays $2,500 Excise Tax: Is that Enough?” →

LA Flood Disaster: Links on Government Aid & Where to Donate

By: Philip Hackney
14021650_1231410703559771_2524920277260321497_n (1) I live in Baton Rouge, LA where I teach at LSU Law Center. Baton Rouge and surrounding communities are currently experiencing unprecedented flooding. The devastation stretches from around the Louisiana-Mississippi border all the way over to Lafayette -maybe 100 miles across. This story does a nice job explaining the weather phenomenon that caused this massive flood event. Neighborhoods that have never flooded before in our recorded history are under 4 -6 ft. of water, and some higher than that. Almost the entirety of certain cities are submerged. The last data I had for my area is that 20,000 were displaced and 10,000 in shelters. I expect that number to go up over the week. Even though it has stopped raining, the flood waters cannot drain because the rivers are too high and cannot take runnoff from tributaries. I am fortunate to live in a house that has been spared from this devastating water. The picture on the left is of Gonzales City Hall underwater.

This is just a quick post on some resources for navigating the legal benefits of a disaster. I highly recommend the tremendous article by my fellow blogger Francine Lipman entitled Anatomy of a Disaster Under the Internal Revenue Code. It discusses all of the income tax impacts of various benefits that you might apply for and receive. In many cases the Code excludes amounts you receive in disasters. The two most significant probably are gifts you might receive from family and friends. Those are excludable under 102 of the Code. More significantly, benefits from the government will often be excluded as qualified disaster relief payments under section 139 of the Code. The fact that President Obama declared this a disaster allows this provision to kick in for the affected areas. Continue reading “LA Flood Disaster: Links on Government Aid & Where to Donate” →

DC Circuit Seems to have Decided IRS Violated Constitution Before Trial in True the Vote Appeal.

By: Philip Hackney

In 2014, a District Court dismissed (based on 12(b)(6) and 12(b)(1) motions) the complaint of a number of conservative organizations who alleged that the IRS “targeted” them by subjecting them to greater scrutiny in their applications for tax exemption. The lead organization, True the Vote, sought 501(c)(3) charitable organization status; the others primarily sought 501(c)(4) social welfare organization status. The world became aware of this targeting controversy in May 2013 when Lois Lerner, the head of the Exempt Organizations division of the IRS apologized to the Tea Party and other conservative groups for how the IRS treated their applications. To this day Taxprof Blog continues the IRS Scandal post over three years later dedicated at least in part to this controversy.

The primary complaints were the second and fifth claims: (2) the IRS violated the organizations First Amendment rights to freedom of speech, and (5) the IRS violated the Administrative Procedures Act. The District Court concluded that because the IRS had granted exempt status to these organizations, the complaints were moot. True the Vote appealed this dismissal to the DC Circuit Court of Appeals.

Last week the Circuit Court breathed new life into claims 2 and 5. Though the Court found that some of the complaints were moot (including Bivens complaints against IRS employees and a claim of violation of 6103 disclosure rules), it allowed claims 2 and 5 forward because it found that the IRS had not voluntarily ceased its unlawful actions.

In reading the opinion, I find astonishing that the Circuit Court appears to have already concluded, without trial, that the IRS acted unconstitutionally. I recognize that for a 12(b)(1) motion the court is to assume the complaint true, but the court appears to have done much more than make assumptions. I focus on this issue. Continue reading “DC Circuit Seems to have Decided IRS Violated Constitution Before Trial in True the Vote Appeal.” →

Examination of Allegations Against Clinton Foundation Part II

By: Philip Hackney

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A week ago I considered one of three allegations Rep. Marsha Blackburn made against the Bill, Hillary & Chelsea Clinton Foundation in a letter Blackburn sent to the IRS, FBI, and FTC. I found the first allegation stated nothing of significance to the IRS. I now look at the other two and find them significantly wanting as well. Recently, IRS Commissioner Koskinen sent a letter indicating the IRS would investigate these complaints. I conclude they fail to state any complaint actionable by the IRS.

The second and third Blackburn allegations seem to come from a book by Peter Schweizer called Clinton Cash. Both allegations suggest that Sec. Clinton provided large governmental benefits in exchange for donations to the Clinton Foundation and payments to Bill Clinton. Both of the claims, already made by Presidential candidate Donald Trump, regarding Laureate University and Uranium One have been rated False and Mostly False by Politifact. Thus, it is difficult to take these allegations seriously.

Nevertheless, there are two things I do in this post. First. I discuss the factual conclusions of others regarding whether there was a quid pro quo arrangement associated with the second and third allegations. Then, I look at how the tax law might treat such arrangements were they true. Continue reading “Examination of Allegations Against Clinton Foundation Part II” →

Johnny Rex Buckles: The Sexual Integrity of Religious Schools and Tax Exemption

Johnny Rex Buckles (University of Houston Law Center) has a new paper out entitled “The Sexual Integrity of Religious Schools and Tax Exemption” looking at whether religious schools that discriminate on the basis of sexual orientation should maintain their tax exemption. The article can be found here. The abstract states:

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.

Examination of Allegations Against the Clinton Foundation

By: Philip Hackney

book-863418_1280 Back in June I wrote disapprovingly of some actions of the Donald J. Trump Foundation. In that piece I promised to write about the Bill, Hillary & Chelsea Clinton Foundation too. Recently, Rep. Marsha Blackburn sent a letter that was scheduled to be sent to the FBI, the FTC, and the IRS. That letter makes a number of allegations about the misuse of the Clinton Foundation, and I figured these allegations would be a good place to analyze the performance of the Foundation that I had promised.

Blackburn alleges a number of things, but I am going to focus on her first allegation in this post because it is the only one that is a pure tax exemption question. She alleges that the Foundation is illegally operating outside the scope of its initial application for tax exemption to the IRS. For reasons explained in the post below, I conclude there is very little involved in this claim and it is a misunderstanding of the law. There could be problems with the Foundation but this is not one of them.

UPDATE: I look at the remaining two Rep. Blackburn allegations here.

Continue reading “Examination of Allegations Against the Clinton Foundation” →

IRS Scrutinized Mostly Conservative Nonprofits: Evidence of Targeting?

By: Philip Hackney

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Documents recently released in a court case demonstrate that 282 of 426 organizations caught in the IRS political advocacy, “Tea Party,” nonprofit organization net that caused such a hullabaloo three years ago, were in fact conservative. This comes three years after Lois Lerner apologized to Tea Party groups on behalf of the the IRS because, she said, it “inappropriate(ly)” selected these conservative groups’ applications for tax exemption for scrutiny based on name alone rather than legal cause.

An NPR report by Peter Overby concludes about the new information: “Whatever the IRS meant to do, this hodgepodge of a list illustrates how the agency bollixed the nonprofit application process.” In this post, I examine this seemingly “common-sense” claim and find it wanting. Additionally, because I have written publicly about this matter both at the time and more recently. I re-examine my conclusions in those writings in light of this new information.

Early on, I assumed that only about 1/3rd of the organizations caught in the IRS net were conservative. I made this assumption based on the TIGTA report because it noted that 96 of 298 applications, or 1/3rd of the organizations, were Tea Party, Patriot or 9/11 groups. I left wiggle room in my writing, but in the back of my mind, this was my assumption. I assumed TIGTA would have reported every conservative group that was in the lot. But, it turns out that about 2/3rds of the organizations were conservative. Thus, my assumption was wrong. The vast majority of the organizations caught in the net were conservative. Nevertheless, I don’t think this new information demonstrates some additional level of bungling by the IRS that was hitherto unknown. And, frankly, a list like this with little context does nothing to tell us about whether the IRS was fair or not.¹ Continue reading “IRS Scrutinized Mostly Conservative Nonprofits: Evidence of Targeting?” →

Should the IRS Penalize Trump Foundation Political Contribution?

By: Philip Hackney

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The news yesterday was focused in part on the fact that in 2013 the Florida AG Pam Bondi personally solicited a political contribution from Donald Trump. And, shortly thereafter the Donald J. Trump Foundation (“Foundation”) made a $25,000 contribution to a political organization called And Justice for All that supported the reelection effort of Pam Bondi for AG of Florida. Bondi’s office ultimately dropped any investigation into Trump University. Bondi denies the allegation that she ended an investigation in exchange for a political contribution. She says her office was never investigating Trump U in the first place. She does acknowledge, however, that her political organization should not have accepted the donation from a charitable foundation. She claims she tried to refund the contribution in March.

The claims against the AG are obviously a serious issue and should be looked at, but I of course see things through a bit of blinders. I see a nonprofit behaving badly. The level of negligence here and misuse of a private foundation frankly drives me crazy. As discussed below, the Foundation’s excuse is that it made a mistake and did not know what it had done. In this post I examine all of the tax code violations involved, and I look at the Foundation’s excuse and try to assess whether it is believable and whether it matters. Continue reading “Should the IRS Penalize Trump Foundation Political Contribution?” →