On January10, 2009, the AALS Section on Nonprofit and Philanthropy Law presented a program on “New Research in Nonprofit Law”. The program was organized by the Section Chair, Evelyn Brody. An encouraging development is an explosion of cutting-edge research by an increasing number of scholars focusing on the sector. Four panelists presented research they are engaged in.
Johnny Rex Buckles (Houston) discussed an expansive project on “Fiduciary Assumptions Underlying the Federal Excise Taxation of Charities.” The project, still in its early stages, will examine the regulation of numerous transactions between a charity and another through the federal excise taxes imposed on private foundations, supporting organizations, donor advised funds and public charities. It will analyze the assumptions about fiduciary behavior that appear to underlie the excise taxes and will demonstrate consistencies and inconsistencies among these assumptions.
Richard Schmalbeck (Duke), offered a proposal for designing a new exempt category for churches. He considers problems of three general types, having to do with political activity; issues related to the appropriateness of subsidizing churches both on constitutional grounds, and on grounds related to the quid pro quo aspects of church finances; and a miscellany of enforcement problems stemming from the easy access churches have to tax subsidies. He then offered an alternative structure: one in which churches would be eligible for exemption under a different paragraph of section 501(c). The proposed new paragraph would resemble the current section 501(c)(4) more than the existing 501(c)(3) designation, in that it would permit a wider range of participation in the political life of the community, but would also deny eligibility to receive tax-deductible contributions.
Stephen Schwarz (Hastings) presented a paper on charitable endowments, “Charitable Endowments: Hot Topics for Research and Teaching – Then and Now”, a topic that reflects the highs and lows of the past year, and caused many “hot topics” to cool off and others to heat up. But as Professor Schwarz added: “in investments, as in life generally, most things are cyclical.” After a review of the legal background and the modern legal background he offered several topics in the timeless category: Imposing a Payout Requirement; honoring donor intent, IRS Rumblings—a compliance questionnaire, revised Form 990, technical issues if a payout requirement were imposed, and taxing charitable endowments. He then offered some current topics for research: permissible spending from underwater endowment funds, the duty of care revisited in light of the Madoff scandal and other investment losses, and accounting issues.
Norman Silber (Hofstra) presented a paper on the collapsing bond markets and the nonprofit debt crisis focusing on liability, accountability and legal reform. Though the press has focused on charities involved in the Madoff scandal, a far wider concern is the heavy debt loads incurred by nonprofits who issued variable rate asset backed bonds, whose interest payments were tied to interest rates determined at weekly auctions. When the markets froze up, the auctions failed and many bond issuers were forced to make heavy interest payments as provided in their bond indentures if auctions failed. This has created additional financial pressures on charities.
Mark Sidel (Iowa) is the incoming chair and is preparing a list of all those teaching in the sector. The cohort is much larger than previously thought.
-Jim Fishman (Pace)