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” →

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 Announces More 2016 LITC Grants

By: Francine Lipman

There has not been a great deal of good news lately about underserved communities or the IRS. But today America received some great news about nine new Low-Income Taxpayer Clinics (LITCs) in underserved areas across America. Five of the nine are in law schools. Continue reading “IRS Announces More 2016 LITC Grants” →

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?” →

Tying the IRS’s Hands. Even Tighter

By Sam Brunson

Yesterday, the House Committee on Appropriations reported H.R. 2995 to the House of Representatives. H.R. 2995, the Financial Services and General Government Oversight Appropriations Bill for FY 2017, if passed, would continue the trend of reducing the IRS’s budget, this time by $236 million.

It is undoubtedly worth looking at what exactly the bill does, but I’m interested in an amendment added yesterday by Rep. John Culberson (R-TX). Section 135 of the bill would make it even harder than it already is for the IRS to audit churches. Continue reading “Tying the IRS’s Hands. Even Tighter” →

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?” →

Obamacare, ACOs, and Tax-Exemption

By: Philip Hackney door-349807_1280

Sometimes, well probably every time, when I teach about hospitals qualifying as tax-exempt charitable organizations I tell the joke from the movie Airplane that goes like this:

Rumack: You’d better tell the Captain we’ve got to land as soon as we can. This woman has to be gotten to a hospital.

Elaine Dickinson: A hospital? What is it?

Rumack: It’s a big building with patients, but that’s not important right now.

The point of this joke is an important one to me. It helps to illuminate the fact that the “promotion of health” as a charitable purpose is focused heavily on a space and an activity combined. Generally for the promotion of health to qualify as a charitable purpose there must be a physical building where doctors and nurses relieve the suffering of the afflicted. Not just any promotion of health suffices. Running a cheap pharmacy just does not cut it. Providing sperm to the women of your choice for free, even though it may effect health, simply does not cut it either (don’t ask, just read the opinion). What about health insurance? Generally, because of section 501(m) of the Code, health insurance does not qualify. However, health maintenance organizations (HMOs) that sell health services in exchange for a monthly fee that also own a building where they treat patients can qualify.

That brings us to a recent IRS denial of the application for charitable status of an organization operated as an “accountable care organization” (“ACO”), a creature of Obamacare. Continue reading “Obamacare, ACOs, and Tax-Exemption” →

Tax Benefits of Government-Owned Marijuana Stores

By Benjamin Leff

I promise that I think about things other than marijuana, but if you’re following my posts on this blog so far, there is little evidence of that. In 2014, I published Tax Planning for Marijuana Dealers, which argued that sellers of marijuana could qualify as tax-exempt organizations under section 501(c)(4), which would enable them to avoid a draconian federal tax created by IRC section 280E. This article inspired a thoughtful response by fellow blogger Philip Hackney, in which Phil argued that such organizations cannot qualify for tax exemption. Among other things, he argued that that the so-called public policy doctrine applies to (c)(4) organizations just as much as it applies to (c)(3)s. We replayed some of our disagreement about the breadth of the public policy doctrine last month on this blog (here, here and here). But now I’ve posted a new draft article that addresses the application of the public policy doctrine to independent government entities that are exempt from federal income tax under IRC section 115 instead of 501(c). Continue reading “Tax Benefits of Government-Owned Marijuana Stores” →

About last night …

“Ask not what your country can do for you, but ask what you can do for your country.” John F. Kennedy

We celebrated Volunteer Income Tax Assistance (VITA) in Las Vegas … and the numbers are impressive. Almost 200 volunteers spent 12,000 hours generating over $25 million in federal refunds that have and will continue to exponentially benefit our local communities and working families, including thousands of children. But for anyone who has served as a VITA volunteer, the personal rewards and deep fulfillment from helping others are priceless. If you are a tax professional looking for something more out of work-life-balance (or are curious about Woody Allen’s antihero advice and afterlife plan) … read more about encore tax opportunities here. Details about VITA programs and generous grant opportunities with fast-approaching deadlines (June 1) follow the fold …

Continue reading “About last night …” →

Sugin: Rhetoric and Reality in the Tax Law of Charity

Linda Sugin (Fordham) has a new article out Rhetoric and Reality in the Tax Law of Charity, 84 Fordham L. Rev. 2607 (2016) that looks essential to anyone who is interested conceptually in the place of charity in state law and tax law. The abstract:

“The rhetoric of public purposes in charity law has created the mistaken impression that charity is public and fulfills public goals, when the reality is that charity is private and cannot be expected to solve the problems that governments can solve. The rhetoric arises from a combination of charity-law history and tax expenditure analysis. The reality follows the money and control of charitable organizations. On account of the mismatch of rhetoric and reality, the tax law of charity endorses an entitlement to pre-tax income and (ironically) creates a bias against taxation. This article reorients the project of defining public and private in the tax law by starting from a normative theory of government responsibility.

It challenges the conventional economic justifications for the charitable deduction and exemption, arguing for a more philosophical approach that makes affirmative demands on government to distribute the returns to social cooperation. Under this approach, the appropriate role of private organizations is residual; they must achieve what governments cannot. The article concludes by arguing that current law’s tax benefits for charity are easily justified in this new understanding.”

Church or Family Business? Puerto Rico Wants to Know

By: Sam Brunson Hacienda

On Friday, Shu-Yi posted an overview of Puerto Rico’s financial problems, and described the centrality of the island’s tax regime to those problems. Today, I’m going to dig into one particular aspect of Puerto Rican taxation: tax-exempt churches.

Last year, the Puerto Rican Treasury department launched an ambitious pilot program[fn1] under which it planned on auditing more than 40 tax-exempt organizations. Juan Zaragoza, Puerto Rico’s Secretary of Treasury, announced that this month the program moves to Phase 3: auditing churches.

As in the U.S., the Puerto Rican tax law exempts some nonprofit organizations from tax. Puerto Rican tax law explicitly exempts

Churches, church conventions or associations, as well as religious and apostolic organizations, including corporations and any community chest, fund, or foundation, organized and operated exclusively for religious purposes, no part of the net earnings of which inures to the benefit of any private shareholder or individual.[fn2]

Some tax-exempt churches, Zaragoza asserted, aren’t really churches, but rather family businesses. They make annual profits, just like a shoe store (and yes, his example was a shoe store), but, because they claim to be tax-exempt churches, they don’t pay taxes on their profits. Continue reading “Church or Family Business? Puerto Rico Wants to Know” →

More on Charitable Organizations and Marijuana

By Benjamin Leff

Last Friday, Phil Hackney posted on this blog about IRS Denial 201615018 (4/8/16), in which the IRS denied tax-exempt status under section 501(c)(3) to an organization that planned to support the cultivation and distribution of medical marijuana in a state in which such activities were legal. As Phil pointed out, the IRS held, among other things, that an organization whose purpose is the distribution of marijuana cannot be tax exempt under section 501(c)(3) because “a section 501(c)(3) organization cannot be created for a purpose that is illegal.” This position is not new. The IRS took a similar position way back in 2012.

Phil and I pretty much agree about the law. We both think that the IRS is probably right that under current law an organization whose charitable purpose includes engaging in illegal activities does not qualify for tax-exempt status under section 501(c)(3). Phil says that the law is “absolutely clear on this front,” which I think is a little bit of an overstatement, but that’s a quibble at best. The reason for this certainty is that the United States Supreme Court has held that an organization that had racially discriminatory admissions or dating policies could not qualify for tax-exemption under the so-called public policy doctrine, a common-law doctrine that applies to charitable trusts. The argument for denying tax-exemption for illegal activities is a part of the public policy doctrine, the rationale being that nothing more clearly defines a jurisdiction’s fundamental public policies than its laws, and so illegal activities must violate public policy.

Phil and I also agree on the “enforcement approach” that should ideally underlie the public policy doctrine. We agree that when the IRS is called upon to apply the public policy doctrine, it should do so according to the brightest possible lines. It should maintain “hard and fast” rules. That is because the room for abuse is so great in this area, since the suspect organizations are almost always advancing unpopular or counter-majoritarian values.

Where Phil and I disagree is whether “illegality” provides an adequately bright line to satisfy this enforcement approach. I think that even where conduct is facially “illegal,” there is ambiguity about whether it violates a fundamental public policy, and the IRS should hesitate before making a decision on that score. When it errs in applying the public policy doctrine, it should always err in favor of the organization. That is because when an organization’s conduct is illegal, there is always another enforcement entity that is empowered to enforce the law and prevent the illegal conduct. The IRS should grant tax-exempt status and then defer to the substantive enforcement entity to use whatever sanctions are at its disposal to enforce the law … if it chooses to do so.

Continue reading “More on Charitable Organizations and Marijuana” →

Dark Days: Blindfolding Nonprofit Regulators

By: Philip Hackney.

The Ways and Means Committee voted Thursday in favor of a bill, H.R. 5053, that would seriously hamper the ability of the IRS to enforce charitable tax law and nonprofit tax law generally. It is a bad-no-good-bill, that comes from folks who champion protection from the IRS, but whose real motive is to make it possible for wealthy individuals to act without hindrance in influencing political campaigns and politics generally. It emanates not from a place of conservatism, but a place of reactionarism and plutarchism (neither of which are words, but both of which probably should be :)). The Koch brothers support this bad bill for a reason.

The Bill will harm IRS regulation and make our already relatively secret-and-subject-to-corruption political contribution system more secret and more subject to corruption (the issue that democrats and interest groups focused upon in attacking the bill). The harm though can be expected to extend to the ability of the federal government and states to regulate individuals using nonprofits to accomplish their ends. Sometimes people running nonprofits do bad things. It will increase the dark in which our regulators try to police the nonprofit sector. Unfortunately, the IRS leant a hand to those trying to give donors greater secrecy as high level officials discussed eliminating schedule B back in December 2015. It is still not clear to me what they were thinking, but I genuinely hope we do not make such a foolish choice. As explained below, we have long recognized a regulatory need for this particular information.

What does this dastardly, seemingly well-intentioned, bill do? Continue reading “Dark Days: Blindfolding Nonprofit Regulators” →