Yale Endowment Just Keeps Growing!

The Yale Endowment, which is the largest academic endowment in the U.S. just keeps getting bigger and bigger. The Endowment grew an impressive 28% this past year, and has topped the $22B (yeah, that’s “B” as in Billion) mark. The New York Times profiled the endowment and its growth in todays business section. Read the article here

From the world of Tax Exempt entities and the government partnering together

An Ohio nonprofit is taking its first-ever federal funding to jump-start a recycling awareness program in four area schools. Communities in Schools, the Columbus arm of the national dropout-prevention organization, has received $18,943 from the U.S. Environmental Protection Agency for its Recycling Awareness program that will take place in four elementary and middle schools in Whitehall City Schools. The grant is one of four distributed nationwide that total nearly $100,000.

Beth Urban, the organization's director of research and evaluation, said the funding will go to after-school programs in the school where students will begin recycling in environmental clubs, go on field trips to landfills and wastewater treatment plants and help initiate a school-wide effort to recycle more and trash less.

"At lot of times recycling isn't ingrained in people's mentality and they automatically throw everything away," Urban said, adding that part of the reason the program is reaching younger kids is because of a generational gap with parents. "A lot of time, parents don't think about (recycling)."

While the recycling program will take place in just four schools during the academic year, Communities in Schools has employees and programs in about 50 schools through partnerships with Whitehall and Columbus City Schools. The organization, opened in Columbus in 1993, is working with a 50-employee base and a $1.9 million budget that is funded through state and city grants along with United Way and corporate funding. Communities in Schools' Columbus branch received $2.38 million in public support during its 2006 fiscal year.

Carl’s Junior Partners with … PETA?

Yes, in the interest of social good, and social awareness, the fast food chain Carl’s Junior (and its affiliated Hardees) have agreed to immediately begin purchasing 15 percent of its pork from suppliers that do not use metal "gestation crates" to confine sows, and increase that to 25 percent by 2009; purchase 2 percent of its eggs from suppliers whose hens are not kept in wire cages by July 2008; and to issue a statement to poultry suppliers stating it will "give consideration to approved suppliers who actively explore and test controlled-atmosphere stunning systems," which animal rights groups consider the most humane way to slaughter chickens.

The agreement is aimed at the improvement of the welfare of animals that provide food for the 1,905 Hardee's restaurants and 1,101 Carl's Jr. restaurants. In a statement made by Jeff Mochal, a spokesman for Hardee's, he indicated, "We take the animal welfare concerns very seriously," Mochal said. "When you meet with PETA they make a pretty good case. We want to stay consistent with where the industry is at now and where it's heading." Carl’s Junior is the second major fast-food restaurant company this year to begin moving toward cage-free chickens and pigs, as Burger King announced similar changes in March.

This is yet another example of how the partnership of corporate America and organizations providing a social or philanthropic good benefits us all. Kudos to you Carl’s Junior and Hardees, you have just earned yourself another socially conscious customer!

Read the Chicago Tribune Article on this Story here.

Genius Awards … missed me again!

So, the John D. and Catherine T. MacArthur Foundation has named the 24 recipients of its 2007 MacArthur Fellowships, and sadly, once again, I was not named. The MacArthur foundation gives the fellowships, commonly referred to as the “genius awards” which recognize individuals from wide-ranging disciplines who show creativity, originality, and a commitment to continued innovative work. 16 of the fellows work at academic or other nonprofit organizations. So, clearly, the intelligence level of the nonprofit world is “keepin’ it real”

Read the article here

House Ways and Means Oversight Subcommittee Hearings

In a related story to the previous post of “How Much Should Charities Give to the Needy,” the House Ways and Means Oversight Subcommittee held hearings yesterday on whether charitable organizations are adequately meeting the needs and requirements of diverse communities. Princeton Researcher Julian Wolpert indicated that his research has shown that charity and volunteer work mostly stays within social, ethnic, racial, religious, and local communities, with little going to the "stranger" (outside a person's social group and locality). "The needs of diverse urban and rural majority and minority communities are largely invisible to donors," he said. Wolpert also said the deduction for charitable contributions does not adequately help the poor. "Our systems of charitable institutions and tax deductibility for contributions are highly cost ineffective as mechanisms for redistribution of household income or social welfare," he said. "The losses in federal and state revenues from charitable deductions far exceed donor transfers to the needy. Redistribution has been demonstrated to be far better achieved through government appropriations than through tax remission or deduction measures." You can read all of Mr. Wolpert’s testimony here.

Read the Tax Analysts report on the hearings here, and get the written testimony here.

How Much Charities Should give to the Needy

An article by Peter Panepento in the Chronicle of Philanthropy notes how large nonprofit groups are not giving an adequate amount of funding to areas with large concentrations of poor and minority residents. This was addressed at a hearing at the House Ways and Means Subcommittee on Oversight, which has some jurisdiction over tax policy. Congress has apparently taken up the mantel of trying to determine what the best tax exempt entity policies for distribution are.

Read the full article here

Criticism for Clinton’s “Giving”

As many of you probably know, President Bill Clinton has released a book entitled “Giving.” The book (unfortunately I’m only half way through it) deals with the impact that the simple act of giving can create, and how much good people in all walks of life can do. The book however, has not been entirely well received. In fact, there are a number of outlets that have actually kind of panned the book. (see
Chris Hedges Review where he analogizes the Clinton Book to the “political equivalent of ‘Marley & Me’”)

The L.A. Times Book Review says, “Clinton doesn't quite come to grips with the hard questions. He prefers cheerleading to analysis, lavishing indiscriminate praise on everyone from the plucky little girl who picks up litter on the beach to the friendly billionaires who finance scholarships and microcredit loans in poor countries. Although the book is nominally divided into chapters highlighting different kinds of giving, the dozens of philanthropic stories that Clinton recounts in these pages swiftly blend into a fuzzy, feel-good blur. Most conclude with the same homily: If only everybody gave their money or time, we'd be living in a different world.”

Another topic is that the book overlooks what is considered by some to be government blame in the area of philanthropy. Jeffrey Sachs of Fortune Magazine says “We wince, for example, at Clinton's description of the "historic Israeli-Palestinian peace accord" of September 1993 and the many good works in its wake. Since the accord actually collapsed, what are the lessons? We are not told. We wince again at Clinton's praise for the outpouring of volunteer efforts in New Orleans after Hurricane Katrina, since we also know that New Orleans has not, in fact, been rebuilt. The problem is that the great policy-wonk President has gone private. Government is a side note, mentioned in passing in the penultimate chapter.”

Having not yet finished the book, even if it is lighthearted, and doesn’t tackle the true underlying issues of the day, I applaud the former president for trying to increase the awareness and the contributions of all Americans. As my grandmother used to say, you catch more flies with honey than with vinegar.

Supreme Court Grants Cert in Two Tax Cases

Boulware v. United States (No. 06-1509): What effect must a federal court give a final, non-collusive state court judgment adjudicating ownership of property in determining a taxpayer’s federal income tax liability arising from that property?
Whether a taxpayer who seeks to invoke the return of capital rule in a criminal tax case must show a contemporaneous intent to treat the corporate distribution as a return of capital?

Meadwestvaco v. Illinois Dept. of Revenue (No. 06-1413): Is the attempt by Illinois to tax the approximately $1 billion gain realized by Petitioner when it sold its investment in Lexis/Nexis in 1994 (which it acquired in 1968 for $6 million and which functioned for 26 years as an independent, nonunitary business) in direct conflict with the decisions of the Court in Allied-Signal, Inc. v. Director, Division of Taxation, 504 U.S. 768 (1992), F.W. Woolworth Co. v. Taxation & Revenue Department of New Mexico, 458 U.S. 354 (1982) and ASARCO Inc. v. Idaho State Tax Commission, 458 U.S. 307 (1982) and the Due Process and Commerce Clauses of the United States Constitution?

Non-Profit Law Podcast

So, for all of you out there who are interested, and I hope many of you are, there is a great podcast being put out by Tim Mooney. nonprofit law podcast is a wealth of information, and provides grea tips, insights, and information regarding the law of nonprofit entities. If you get a chance, check it out here

Newt Gingrich saves a 501(c)(3)’s skin … yeah, Newt.

American Solutions Returned a $50,000 contribution from a 501(c)(3) in August, which upon further review saved that organizations’ exemption. American Solutions is Newt Gingrich's 527, and in what can only be described as an amazing twist of fate, American Solutions return of the money saved the 501(c)(3) from violating the prohibition against lobbying activities.

A 501(c)(3) public charity is prohibited by tax law from giving money to any entity in a manner which supports or opposes candidates for office. A 527, typically, exists solely for political purposes. That is, usually solely for the purposes of supporting or opposing political candidates. American Solutions is incredibly polarized and politicized, so they couldn’t argue that the $50,000 would be put towards non-partisan uses, so they returned the money to the 501(c)(3) to save them from themselves from a sure-to-come complaint. In response, the Hasan Family Foundation, the 501(c)(3), stated: “American Solutions is a nonpartisan effort that is focused upon educating Americans. None of the funds contributed to the organization are going towards politicians or a political party. We would never contribute foundation funds to a political party and/or candidate.”

The reality is that tax law is a lot stricter than that. The Hasan Family Foundation can do nothing at all that supports or opposes candidates. Giving money to an obviously partisan 527 that will use that money to fund things that support or oppose candidacies crosses the line. The folks at Hasan Family Foundation should count their lucky stars as the typically not charitable minded American Solutions were savvy enough to notice that such donation would put them both in the lobster pot!

Superhero of the Week – Patrick S. as Spider-Man

Congratulations to Patrick S., this week’s winner for the Superhero of the week contest. Patrick Compared himself to Spider-Man, and did a very thorough job in said comparison. This week’s submission for superhero of the week pretty much sets the bar for the A+ answer. I encourage all of you to read it in its entirety as it is a great answer. We had tons of great submissions this week. If yours didn’t get picked, continue to send them in, maybe next week will be your week!

I've always related best to Spider-Man, and have felt that way long before his late-90's movie-fueled revival. It's sort of a cliché to say that Marvel Comics' characters seem a lot more "real" than DC's Golden Age icons--Superman, Wonder Woman, etc. – because they are flawed and conflicted and deal with more real-life issues. Well cliché or not it's true, and it's more true for Spider-Man than any other character. Batman may be cool, but he's also a borderline-psychotic billionaire who just happens to be a genius and apparently the world's greatest athlete, and that's just not easy for me to relate to. Wonder Woman is literally a goddess. Superman is an alien who is practically omnipotent, and sheesh, how boring is that? What I like best about Spider-Man is that he's not all that 'super' when you really think about it. Thanks to a radioactive spider bite (I know, I know; it's really not that much more realistic than being the Last Son of Krypton, but stick with me) he's stronger and faster and more agile than a normal person, and he can cling to walls. That, plus the fact that his Spider-Sense warns him of danger ahead of time – but often not soon enough to actually allow him to do anything about it – is pretty much the extent of his powers. In the movies he also gains the ability to sling webs from his wrists organically, but in the original comics he actually had to build web-shooters from scratch (a fact that resulted in an oft-repeated crisis wherein Spider-Man would run out of "web fluid" at crucial moments). Spider-Man's enemies are often much stronger and more powerful than he is, and as a result he is often forced to fall back on his wits or just plain old dumb luck to get by. He doesn't win every battle he fights. And rarely is he out to save the world; usually he's just trying to make his hometown a little safer. At heart, all superhero comics are really about wish fulfillment, usually adolescent male wish fulfillment. Spider-Man accomplishes that, but it also hits almost every note perfectly in telling the relatable story of an imperfect guy who's just trying to figure out the right thing to do, and much of the time getting it wrong. When you get down to it, Peter Parker is just a poor kid from Queens. For most of his life he's been painfully awkward with girls, and often through no fault of his own has to endure public humiliation from knuckle-draggers with idiotic names like "Flash." His sense of responsibility makes it difficult for him to carry on a normal life and strains relationships with people he cares about. Sometimes his hard work and good intentions still blow up in his face. And to top it all off, about half of the population often seems to resent and suspect the worst of him (usually thanks to disinformation supplied by newspaper magnate J. Johah Jamison). In the end his reward is usually not the key to the city or statues in his honor, but only the knowledge that his anonymous sacrifice has hopefully made the world a slightly better place. I doubt there's a human being out there who can't relate to at least parts of his story, and I personally relate to pretty much all of it.

The Work of Tax Exempt Entities is Far from Just Tax Based

The American Red Cross, one of the largest public charities in the United States, has fired another shot in their trademark infringement case against Johnson & Johnson. Johnson & Johnson is suing the Red Cross claiming that the Red Cross has infringed on J&J’s trademark. The Red Cross disputes these claims, and on Thursday, the Red Cross asked that the claims be thrown out.

The Chronicle of Philanthropy has an article about the matter available here. The article contains a link to the statement released by the Red Cross setting forth their position.

New FAQ's on Form 990-N, the "e-postcard"

The IRS has posted an update as to the frequently asked questions that surround the redesign and the changes surrounding the new Form 990-N. Form 990-N is an information return that small tax-exempt organizations must file with the Service.

Following the enactment of the Pension Protection Act of 2006, exempt organizations whose gross receipts are usually $25,000 or less are required to file with the IRS a Form 990-N information return, also referred to as an "e-postcard." The e-postcard, according to one of the questions posted to the IRS site, asks for basic identifying information such as the organization's legal name, address, and employee identification number, as well as the name and address of its principal officer.

The IRS directs small exempt organizations to file an e-postcard "every year by the 15th day of the fifth month after the close of [their] tax period." The IRS has indicated that it is working on developing a "simple," Internet-based filing system for the e-postcards so organizations that do not own a computer can complete their e-postcards off-site. Also, because the system will be Internet-based, organizations will not need to acquire software to file the form, according to the IRS. (You can see all 14 frequently asked questions here.

IRS Bulletin Provides Change in Place of Filing Forms 1096 and 1098-C

Tax Analysts reports today of the IRS’ changes in filing instructions for organizations receiving motor vehicle, boat, or airplane deductions which are sued by the donee organization to report contribution of qualified vehicles with a claimed value exceeding $500 for calendar years ending after December 30, 2008. The IRS Bulletin provides guidance on the reporting requirements under § 170(f)(12)(D) of the Internal Revenue Code. All Forms 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, along with Form 1096, Annual Summary and Transmittal of U.S. Information Returns, filed after December 31, 2007, must be filed with the Internal Revenue Service Center in Kansas City, Missouri, instead of the afore proper place, Ogden, Utah. The Internal Revenue Service Center at Ogden remains the location for Form 1098-C filed on or before December 31, 2007.

Comments on the Redesigned Form 990

In response to the request by the IRS for comments on the resdesigned Form 990, The National Assocaiton of College and University Business Offices (“NACUBO”) submitted comments indicating that the redesigned Form 990 information return filed by tax-exempt organizations would place additional reporting burdens on colleges and universities. Additionally, Professor Evelyn Brody of the Chicago-Kent College of Law offered recommendations for redesigning the Form 990 information return filed by tax-exempt organizations. Also, the American Institute of CPA’s (“AICPA”) provided suggestions for successful implementation of the new draft Form 990, ways to mitigate increased taxpayer burden resulting from the redesigned form, and comments on the need for clarity and consistency in compensation reporting. And Eve Borenstein of the Borenstein and McVeigh Law Office LLC provided additional comments to the IRS on the redesign of the Form 990 information return filed by tax-exempt organizations.

Google Gives $30M for Space Exploration

Google gives to X Prize Foundation. Google, should be in contention for the most socially conscious company of the year award. They have done great things in their creation of Google.org, and the donation of their own funds to Googl.org in order to pursue social entrepreneurship; however, Google has also recently pledged $30M to the X-Prize Foundation. The grant is for a new effort to encourage private organizations to develop a robotic spacecraft that can successfully land on the moon.

The Google Lunar X Prize is open to nongovernmental teams of scientists and inventors around the world. A grand prize of $20-million will be awarded to the first team to land a vehicle on the moon by 2012. The craft must successfully roam the lunar surface for a distance of 500 meters and transmit back a specified “mooncast,” which would include high-definition video and other data.

An additional prize of $5-million will go to a second team that completes this task by 2014. As much as $5-million in bonus prize money will be awarded to teams whose vehicles complete additional tasks, such as roaming beyond 500 meters or discovering water or ice.

Google is providing all of the prize money, while the foundation will oversee the contest. The X Prize Foundation develops cash-award programs designed to spur scientific and technological innovation.

Go Google! Keep up the good work. The chronicle of Philanthropy has published an article on the gift, which is available here.

Social Entrepreneurship: Should it Receive Tax Exemption Benefits?

Google founders Larry Page and Sergey Brin have established a foundation which intends to devote employee time and one percent of Google’s profits and equity towards philanthropy with the hope that one day Google.org will have a greater impact globally than Google itself. Google.org is the philanthropic arm of Google and is the umbrella which includes the work of the Google Foundation, some of Google's own projects, as well as partnerships and contributions to for-profit and non-profit entities.

The difference between Google.org and other typically philanthropic entities is that Google.org will not receive a tax exemption as a charitable entity, and will conduct its operations for profit.

By choosing for-profit status, Google will have to pay taxes if company shares are sold at a profit — or if corporate earnings are used — to finance Google.org. Any resulting venture that shows a profit will also have to pay taxes. Shareholders may not like the fact that the Google.org tax forms will not be made public, but kept private as part of the tax filings of the parent, Google Inc. However, Larry Page and Sergey Brin, believe for-profit status will greatly increase their philanthropy’s range and flexibility. It could, for example, form a company to sell the converted cars, finance that company in partnership with venture capitalists, and even hire a lobbyist to pressure Congress to pass legislation granting a tax credit to consumers who buy the cars, as charitable entities are not permitted to lobby congress, except to a very limited extent.

The first project that Google.org has authorized is the production of an efficient hybrid car that utilized efficient gasoline consumption, ethanol consumption, and plug in electric use. This incentive program, known as RechargeIT, was launched in June, and provides $10M in research funding for the winners.

The question that I pose is whether these entities that are operating for a social good at a reduced profit margin should be allowed to benefit from the stated social goal of providing charitable services to the public, which typically receive charitable status und the Internal Revenue Code? If you think about it, these social entrepreneurship are arguably creating more social good, than say a large donation to a University or a Church, and could be considered to be bringing more quality back to the lives of all people; however, because they are operating for a minimal profit, they are not entitled to any tax relief. While I don’t know what the answer should be, I think that it is an interesting piece, and should be embraced by all, whether it receives for tax exemption or not. Way to go Google! Continue to show the captains of industry how to properly steer their ship in order to effect the greatest good for the world as a whole, and not just for their own pocketbooks. And, as I’m sure that Google will see, the combination of good work with an industrial backing will in fact increase their utility in both a financial and personal happiness sense.

The New York Times has also written an article on the formation of Google.org, and the philanthropy being asserted by Google. Read the full New York Times article here.

Hail to the Victors!

Well, you can’t spend all day everyday enjoying the ever-changing world of tax. So to fully experience the Midwest, my wife and I traveled to Ann Arbor Michigan this weekend to watch two of the most storied college football programs in history, the University of Michigan Wolverines and the Notre Dame Fighting Irish do battle in the historic confines of the Big House. While neither program appears to be that storied this year (both were 0-2 coming into the game on Saturday), it was still fun to be in such a memorable venue, and to see the wolverines get their first win of the year.

We went to Ann Arbor to visit a good friend from Reno who is finishing up dental school at the University of Michigan. We stayed with her, and went out in Ann Arbor, enjoying the town, taking the dog out to breakfasts with us, and generally enjoying life outside of the Northwestern Law Library. Thanks to Katy for being a tremendous host, thanks to the Two for being a good traveling companion and being well behaved all weekend, and thanks to Tiffany for being a wonderful wife and traveling companion, and making even the simplest little road trip a cause for celebration. Ok, back to studying, thanks for a great weekend, and now I'll gat back to topical posts for tax exempt entities.

More on the departure of the Harvard endowment chief …

An article in the New York Times business section addresses the subject blogged here on September 12th, 2007. In particular, the inability of large university endowments to be able to keep top level talent for the adminstration of the foundation. The problem, as addressed by the article, “A dropout problem for Colleges,” by Jenny Anderson, is that “Being the chief investment officer of an endowment is one of the hardest jobs in the investment business because there are so many constituencies involved,” said Verne O. Sedlacek, president and chief executive of Commonfund and a former chief financial officer at Harvard Management Company. “In my job, I have 1,800 clients with one objective — investment performance. An endowment has one client with 1,800 objectives.”

Consider the constituencies: students who may want you to shed your holdings in companies that do business in Sudan because of the genocide in Darfur, or professors who do not make a lot of money and happen to have very specific expertise in just about everything. It is a clash of civilizations; liberal academia meets cold, crass capitalism.

“I’ve never been called names worse than those I was called by professors and others on campus,” one former endowment head said. “It gets personal very quickly.”

Thus, with all the economic world turmoil, and the different objectives for endowments, the job is at once coveted as prestigious, and unwanted as it is frightfully hard to keep everyone content.

Read the full article Here

Superhero of the Week!

So, you may or may not have seen in my profile that there is a contest for the best weekly superhero answer. The superhero answer is the answer to the interview question "if you had to equate yourself to a superhero, who would you equate yourself to, and why." Creativity counts in this one.

The best submissions of the week will be posted every Wednesday.

This weeks winner comes from an attorney in Nevada, Mike L., who has said that if he were a superhero, he would be “Zan from Wonder Twins. Zan was the twin brother of Jayna, his much cooler and hotter sister. His sister had the awesome power to be able to turn into any animal. Unfortunately for Zan, he could only turn into the various forms of water, including mist, liquid, steam, and ice. Truth be told, this is the most inadequate superpower ever, unless you are fighting Wicked Witch of the West. I closely identify with Zan because my sister is a superior human being in all ways to me, but I still know how to get a little steamy, or give the cold shoulder when necessary (ice cold!).”

Great answer Mike L.

Check back next week for the “superhero of the week”