AG Enforcement of Private Inurement Prohibitions

Julia Roberts and the real Erin Brockovich

Attorney General enforcement of nonprofit profiteering prohibitions seem to be on the rise.  But that’s just my impression. Maybe the NRA case and other high profile actions just make it seem that way.  Most of it appears to involve variations on the same private inurement and excess benefit theme.  In Ohio, a while back, the AG sued a buncha charitable fiduciaries for what amounts to private inurement.  Minnesota’s AG has also been in on wholesale enforcement actions, as has the District of Columbia. which recently announced resolution of enforcement actions against three nonprofits each manifesting private inurement or excess benefit in one fashion or another. The Fraternal Order of Police, Coast Guard Auxiliary Association, and Delta Phi Epsilon, Inc. all got caught with hands in cookie jars. And then there was George Santos, who dressed nicely, drove fancy cars, and got all the way to Congress using donated money.   It all amounts to more than just the scintilla of individual profit. it seems to involve a whole heaping helping going on everywhere.  And if its anything like the drug trade, we ought to wonder how much people are getting away with.  I bet a whole lot.  Especially of the more sophisticated types involving donor advised funds. Jumping on the obvious boneheads seems akin to rounding up street dealers in the drug trade.  Lots of people notice but hardly a dent the round-ups make.  There is probably a whole lot more going on and with smarter people.  I bet donor advised funds abet profit-taking in the same sanitized way a few big corporations killed people and animals in the movie Erin Brockovich. Slowly and imperceptibly.  Anyway, I asked ChatGpt how states enforce private profiteering as it occurs in donor advised funds.  Here is the unconfirmed answer it gave:

1. Registration and Reporting: Some states require DAF sponsoring organizations to register with a state agency, such as the Attorney General’s office or a state charity regulator. They may also need to file annual reports or financial statements with the state, providing details on their operations and distributions.

2. Minimum Distribution Requirements: Certain states impose minimum distribution requirements on DAFs, specifying the percentage of DAF assets that must be distributed for charitable purposes within a certain time frame. Failure to meet these requirements may result in penalties or loss of tax-exempt status.

3. Prohibited Activities: State laws may prohibit specific activities or practices related to DAFs, such as self-dealing, conflicts of interest, or excessive compensation for DAF administrators.

4. Governance and Oversight: Regulations may govern the governance structure of DAFs, ensuring that they have appropriate boards of directors or oversight bodies. Some states may also require DAFs to have written policies and procedures in place for grant recommendations and distributions.

5. Disclosure and Transparency: DAFs may be required to disclose their fee structures, administrative expenses, and any fees charged to donors or grant recipients. Additionally, some states may require DAF sponsoring organizations to disclose information about their grantmaking, including the names of grant recipients and the purposes of the grants.

6. Grantmaking Restrictions: States may have rules about the types of organizations to which DAFs can make grants, ensuring that the funds are used for charitable purposes.

7. Endowment and Asset Management: Some states may have rules regarding the management and investment of DAF assets, including guidelines for prudent investment practices.

8. Enforcement and Penalties: State regulators have the authority to enforce these regulations and may impose penalties or sanctions on DAF sponsoring organizations that fail to comply with state laws.

We might just need a DAF version of Erin Brockovich.

darryll k. jones