Counting Down the Top Ten Nonprofit Topics for 2024
Here is my unscientific countdown of the ten most impactful nonprofit legal happenings of 2024. I relied on just one criterion: the extent to which the topic impacts or potentially impacts nonprofit or tax exemption jurisprudence specifically. So I don’t include Loper Bright because it will have impact well beyond IRC 501(c)(3). I also omit Iowaska Church of Healing because the law is clearly on the Church’s side. The unfortunate outcome is more a result of a bad litigation strategy than substantive law. There are other interesting topics I omitted – the interminable debate regarding nonprofit hospitals, the National Rifle Association implosion, and conservation easements, for example. With that, here is my countdown of the top ten nonprofit topics for 2024:
10. NIL Collectives. Whether NIL collectives should have ever qualified for tax exemption was an easy call, actually. At least I thought so initially. I now think NIL collectives can qualify for tax exemption. But the Chief Counsel Memorandum asserting otherwise is interesting. The memo’s conclusion is correct as applied to the collectives described in the memo. But it has a serious analytical flaw. The memo says that “student-athletes” do not compose a charitable class and therefore providing talent agency placement services to them is not a charitable activity. The memo asserts that student-athletes can be a charitable class only if they are poor. But that can’t be right. Students and amateur athletes compose charitable classes separately, without regard to their economic status. It is mathematically impossible that the two classes combined do not compose a charitable class. The better rationale is that talent agency placement services to student-athletes meets neither a student’s educational need nor an athlete’s competitive need. Hopefully, the Service will sharpen its rationale in a future revenue ruling.
9. Migrant Serving Nonprofits. Italy and Texas’ separate attempts to criminalize migrant serving nonprofit organizations exemplify government’s sometimes arrogant willingness to dispense with law to stifle Civil Society. In Italy, the government has taken a hard line against rescue boats and airplanes patrolling the Mediterranean Sea in an effort to save drowning migrants. Italy is clearly violating international law but international law is impotent so far. Italy’s efforts are just an international manifestation of the same animus and disregard for law underlying the Lazy-eyed Cowboy’s unholy crusade against Catholic nuns and other nonprofit actors offering food and shelter to cold and hungry people along the southern border. Don’t expect that situation to improve before it gets worse.
8. Definition of Church and Religion. Catholic Charities Bureau v. Wisconsin. The Supreme Court only recently granted certiorari to determine whether Wisconsin can define “religion” for purposes of exemption from Wisconsin’s unemployment taxes. CCB argues that Wisconsin violates the First Amendment by limiting religious exemption to organizations that proselytize. Implicit in that argument is that the State may never define “religion” not even in an effort to provide discretionary benefits to worship organizations. But if that is true, the government would be precluded from making distinctions between “religious organizations” and “churches” in the Tax Code. Indeed, a government would be precluded from ever deciding that an organization is insufficiently spiritual to warrant tax exemption. A government should be able to define “religion” or “church” in content neutral ways. If it cannot, it must provide the discretionary benefit to all who claim religious eligibility or none at all. Waltz, by the way, allows religious tax exemption, it does not require it.
7. Donor Advised Funds. Nearly twenty years after IRC 4966 and 4967, the Service issued DAF Proposed Regulations. The proposed regs triggered an avalanche of comments. The Tax Court subsequently ruled that the Service must consider and articulate responses to every comment that challenges a “fundamental premise.” There are plenty of those, trust me. And then after that, the Supreme Court overturned the Chevron doctrine. So there are two cases suggesting judicial willingness to supervise and second guess administrative regulations even from the taxing agency. Treasury states that those judicial decisions will not affect its rulemaking process, but you gotta think that Treasury is reading comments with greater care and deliberation than it would have before those cases. So it could be more than a minute before we see finalized regulations.
6. Terrorism. HR 9495, the Stop Terror-Financing Bill must be the most misunderstood and mischaracterized bill in the history of misunderstood and mischaracterized bills. Current law allows Treasury, in consultation with State and DOJ, to effectively revoke tax exemption when Treasury determines that a domestic organization supports foreign terrorism. Treasury need not prove or explain its determination. HR 9495 does not grant new authority. It doesn’t give to Treasury the power to do anything Treasury cannot do today. It still requires the same consultation as current law. The Bill imposes modest but still insufficient process requirements.
5. DEI Backlash. Fearless Foundation involves an application of Students for Fair Admissions to an exempt organization that limited grants to businesses owned by African-American women. The American Alliance for Equal Rights sued the Fearless Foundation claiming that its grant program constitutes an offer to contract with grant recipients and that the limitation of those “offers” to African-American women violated a federal law prohibiting discrimination on the basis of race in contracting. The case settled before a final ruling but it nevertheless raises questions about exempt organizations whose goal is to remediate past discrimination.
4. Campaign Intervention Olympics. There are two significant cases in the pipeline challenging the prohibition against campaign intervention in IRC 501(c)(3). The plaintiffs in SAFE SPACE voluntarily dismissed their case to give the Service time to fully consider the application for tax exemption. The complaint asserts that Citizens United establishes the Johnson Amendment’s unconstitutionality and Taxation with Representation does not cure the prohibition’s infirmity. The plaintiffs throw in the argument that its contemplated campaign intervention would incur no additional costs and therefore exemption would not subsidize political activity. The complaint in National Religious Broadcasters is not as well written and rather hard to follow. But the plaintiffs in that case have the strongest argument because it involves religious freedom. Their argument boils down to an assertion that politics and religion cannot be separated so the prohibition against campaign intervention infringes on the free exercise of religion. Once plaintiffs in either case get their ducks in a row, we should see the last of the Johnson Amendment.
3. Gaza and Charities at War. The war in Gaza continues to have profound impact on the regulatory environment impacting Civil Society. It unleashed a “for us or against us” sentiment resulting in the sacking of Ivy league presidents, donor boycotts, campus protests, congressional investigations (see below), and accusations of antisemitism and genocide. Universities, think tanks, social justice organizations, student groups, and even international scholar exchange groups suddenly found themselves in a political whirlpool, accused by both sides of supporting the other. In Congress, legislators introduced a host of bills designed to punish universities for alleged support of other groups allegedly supporting terrorism and antisemitism.
2. House of Representatives‘ Coordinated Attacks on Civil Society. Six different House Committees launched investigations of nonprofit organizations’ speech and activities related to the war in Gaza. The hearings have been one sided and farcical but they were all given a shot of adrenaline and legitimacy by the disastrous testimony of four of the most accomplished women in higher education in the country. Republicans harnessed a wave of shock and indignation when the over-prepared witnesses declared that calling for the genocide of Jews might not be hate speech. The indignant Republicans did not pass a single one of the punitive measures proposed in response but they have rather successfully demonized progressive civil society. Democrats cowered the whole time. Bernie Sanders declared a pox on both their houses. Regardless of whether any specific laws are enacted as a result, historians might later characterize Civil Society as something other than beneficial to democracy if all they have to go by are the Committee reports.
1. Joint Ventures and Nonprofit/For-Profit Conversions. OpenAI went from an independent 501(c)(3) to a captive joint venturer with Microsoft and its own employees. It introduced the concept of a “capped profit” entity that, despite its layers, appears compliant with Revenue Ruling 98-15. Investors are still not satisfied with the possibility of astronomical (100x) ROI and have forced OpenAI to jettison its tax-exempt status. Sam Altman eventually admitted that he wished OpenAI had never even applied for tax exemption. The joint venture is now worth nearly $160 billion and private investors are no longer willing to accept limitations on their profiteering. Along the way, OpenAI tested every boundary between non-profit and for-profit scientific research. Investors have forced OpenAI to transfer its assets to a Delaware public benefit corporation within two years. Last Friday, OpenAI acknowledged as much in a slick and sappy piece of propaganda proclaiming that only profit-taking will save humanity against robot domination. The transition will be scrutinized, no doubt, by Delaware, California and the Service. If nothing else, OpenAI will generate new nonprofit and tax exemption law for years to come.
Let’s talk again next year.
darryll k. jones