Should I Start a Nonprofit? Trying (and Failing) to Take Our Own Advice
Following up on our last post, and with our firm continuing to feel frustrated about how we’re supposed to help, we started kicking around an idea. If we think nonprofits should be open and defiant about their support of diversity, equity, and inclusion and if we think philanthropy should be putting up their resources to defend those that do, why not set up a nonprofit to gather and provide that support? Provide our own expertise in terms of defending the exempt status of progressive organizations that are targeted, gather volunteers or use donations to hire experts to help with the things we have no business doing ourselves (immigration, civil rights litigation, criminal defense), and educate organizations in a way that pushes back on the fear campaign.
As transactional attorneys, we are not as useful as we’d sometimes like to be when it comes to times like these. No one makes movies about tax lawyers, and they really shouldn’t. The lawyers doing the most important work right now, and always, are the ones trying to keep people safe and out of cages.
So, we’ll just have to settle for one of the handful of things we know how to do, which is set up a nonprofit. And maybe we can help make it a little more meaningful by making it an educational exercise – using this blog to discuss and share documents for each step in the process in case people want to try it themselves.
Before committing to actually setting it up though, let’s ask the question that we try to get all of our prospective-charity-founder clients to ask: is a new charity actually necessary?
The Wrong Way to Manage Risk Under the New Administration
I will spare our readers a detailed recap of what is going on at this particular moment in history, and what it means for nonprofits. If you’re reading a nonprofit law blog, you probably know that the administration has threatened, directly or indirectly, foundations and charities that care about diversity, equity, and inclusion and progressive principles with loss of federal funding, enhanced enforcement, or revocation of exempt status.
The legal foundations of these threats do not warrant serious consideration. They misstate the law by conflating interest in diversity or combatting racial injustice with unlawful discrimination, criticism of Israel with antisemitism, and concern for immigrants with treason. They are brazenly unfounded arguments advanced by a hateful administration dedicated to oligarchy, resegregation, and hostility to anything other than self-interest, and should be treated as such. If their arguments prevail, it’s only because they’ve broken the system that will consider them.
From that context emerges a pernicious version of “risk management” – namely, asking nonprofits to dance around their mission. Whether that’s private foundations being “silently defiant” (an oxymoron, I’d argue) with respect to DEI or public charities being told by funders or their own Boards to Ctrl-F their way to safety by deleting the words the fascists don’t like (this NYT article has been cited to me a number of times), the premise is consistently that the threats need to be dodged rather than answered.
Why are so many nonprofits and their advisors acting like we are the ones that need to change?
To Live and Dissolve In California: Nonprofit Dissolution and the California Attorney General
Being a nonprofit corporation is always harder than being a for-profit: you have to follow additional rules, you can’t just do anything you want, you have to limit your benefits to insiders, and you have additional regulators looking over your shoulder.
And it’s not just more difficult during life – in California, your nonprofit corporation can’t even die in peace. You have to ask the Attorney General’s office for permission.
After years of maintaining a very helpful Guide to nonprofit dissolution, California’s Attorney General’s Charities Bureau (the “AG”) has issued some proposed regulations to formalize these requirements. With a couple of minor exceptions (most of which will be addressed in a Part II to this post), there is not a lot of new there. Still, it provides a useful opportunity for us to summarize a common project of ours and dilemma of our clients: wrapping up your California nonprofit in a compliant manner.
Reflections on HR 9495 and Risk
Some thoughts:
1. HR 9495 is a terrible bill, on its face and in its intent.
2. It affirms the authoritarian intentions of the incoming administration.
3. It confirms that the Democratic party (15 of whom voted for the bill this week, and 52 of whom voted for it the prior week) has many members who will support those authoritarian intentions if it gives them a chance to intimidate supporters of the Palestinian people and silence critics of Israel’s atrocities in Gaza.
4. If you have doubts about #3, note that the provisions in this bill are identical to HR 6408, which passed the House in April by a vote of 382 to 11. If your response to that is “it wasn’t Trump at the time,” then I’d say: (1) granting authoritarian powers to the favored party’s administration is still authoritarianism, and (2) please consult April Trump vs. Biden polls and consider whether this was a foreseeable outcome.
5. Whether or not nonprofits and other defenders of common sense are successful in mobilizing to defeat the bill in the Senate, our advice to nonprofits will remain the same as it was before this bill was introduced.
The Launch of MLC Employment: Helping Nonprofits and Social Enterprises be Better Employers
Today, I not only get to announce the arrival of another great attorney to join our growing team in Daniel Lac, I also get to announce the arrival of a whole new line of service for the firm: MLC Employment.
MLC Employment will be the vehicle through which our firm goes beyond just the specialized tax, corporate, and outside general counsel services we provide to nonprofits, and provides specialized labor, employment, and human resources legal advice to nonprofits, social enterprises, cooperatives, and any other organization committed to maintaining positive and compliance relations with their employees. Daniel Lac will be the leader of this effort, applying his 10+ years of employment law experience at major firms for a wide variety of complex organizations to create an employment law practice that caters primarily to the needs of nonprofit organizations.
Fiscal Sponsorship and the Proposed DAF Regulations: How Big a Problem Do We Have?
Another really enjoyable time a couple of days ago with Fiscal Sponsor Conversations, this time talking about how fiscal sponsorship could be impacted by the Proposed DAF Regulations (which we wrote about earlier as it relates to other issues). I am sharing the slides here. Probably impossible to explain DAFs, what the proposed regulations are and mean, and what that has to do with fiscal sponsorship in a single presentation or blog post. But the exercise helped me boil down what my recommendations are for fiscal sponsors to manage this risk.
If you want a deep dive into the regulations, check out our earlier post or slides. If you want to skip to the back of the book, let’s go through what my current takeaways are (none of the below is legal advice, of course, just the rambling of someone who spent too much time putting together slides)…
May Day Post: What If 501(c)(3) Asked for More?
On a day that happens to also be May Day a/k/a International Workers’ Day, I am left reflecting on how little we, from a legal perspective at least, ask of some of our nonprofit organizations. Yes, this blog has many posts about different rules they need to follow to different types of activities and limits on private benefit. But what do we really ask in terms of commitment to a particular set of values? I think the answer is “next to nothing”.
Model C Fiscal Sponsorship and Filmmaking
I was fortunate to present at Fiscal Sponsor Conversations this past week on Model C fiscal sponsorship as applied to filmmaking (and to present there this coming week on how the proposed DAF regulations affect fiscal sponsors). If you’re not familiar with this group and are engaged or interested in fiscal sponsorship, I can give it my strongest recommendation. Fun group, interesting speakers, and, at least when I’m not there, a great rotating cast of presenters. Andrew Schulman of Schulman Consulting and Oliver Hack of Social Good Fund do a great job creating an engaging atmosphere.
Because the topic is something I find interesting and think about often, I thought I’d share my (a bit rudimentary) slides from this presentation and a few random thoughts on filmmaking as a charitable activity, when it feels safe, and when it is pushing the boundaries of how the charitable sector is supposed to operate.
Webinar on Nonprofit Advocacy to Defend Reproductive Rights
In addition to our own presentations (more to come soon), we want to make sure to call out some of the great work being done by others in the sector.
As a great first example, the exceptional team at the Forefront Project will be conducting a webinar on federal tax law and state law rules regulating ballot measure advocacy by nonprofits and how they might be able to help your organization navigate them.
The Forefront Project does fantastic work providing pro bono legal services to organizations that fight to defend reproductive rights. Given the ruthlessness of the right-wing and the degradation of human rights in this country by the current Supreme Court, organizations devoted to protecting the right to abortion need every tool they can get. And it is no time to shy away from political advocacy and the many ways you can do it without violating any rules.
Please check out the webinar and support organizations like Forefront doing what they can on this issue.
Upcoming Presentation: Impact of Proposed DAF Regulations
Most of the time, we forget to promote the various presentations we do here at MLC because we are too busy scrambling to get the materials together between calls and client projects. But, I feel particularly fortunate to be presenting with Gene Takagi of Neo Law Group, whose firm and exceptional blog are a big inspiration for us.
And we are speaking about a topic we covered not too long ago on this blog: the proposed DAF regulations and how they might impact sponsors, donors, and grantees.
The presentation is on February 6 at 12pm through Stafford Webinars — check it out here if you are interested (and we have a few complimentary registrations left over, so don’t hesitate to reach out if you’re curious).
Hot Off the Presses: A First Take on the Proposed DAF Regulations
We now have DAF (proposed) regulations! If that seems like a strange thing for a human being to apply an exclamation point to (it is), consider that there are hundreds of billions of dollars in donor-advised funds (DAFs), with complex rules and prohibitions but barely any real guidance. The DAF rules were created by the Pension Protection Act on August 17, 2006. There are human beings driving cars and getting ready to vote in the next Presidential election who have never known a world without the DAF rules. And today marks the first proposed regulations.
And after today… well… we still have some questions. But it’s something!
Considering that these regulations have been nearly twenty years in the making, it would be prudent to do a slow and careful review of the regulations and advise on what they portend for the donor-advised fund (DAF) world and the nonprofit sector. But I find hasty overreactions more fun to write, so here are some key takeaways from these proposed regulations, released today.
Nonprofit Publishing and a Defense of the Commerciality Doctrine
When I was a younger person with numerous pretensions and abundant spare reading time, if asked for my favorite to work to revisit regularly, I probably would have cited some bleak French or Russian literature that I may have read one and a half times (generous) but nonetheless decided was core to my personality.
Having traded (some of) those pretensions and (nearly all of) that spare reading time and attention span for the life of a nonprofit tax lawyer, the answer now might be Revenue Ruling 67-4: a 56-year old one-page-long ruling about when publishing counts as an educational activity for 501(c)(3) purposes. Life comes at you fast, etc.
Revenue Ruling 67-4 is not even mentioned in the 501(c)(3) application-denial ruling that caught my eye this week. But it easily could have been. And I think it pairs neatly with something that is cited: the commerciality doctrine, as articulated in Living Faith, Inc. vs. Commissioner, a 32-year old tax case about a religious health food store.
So, join me in a discussion of these two great works of “literature”, and the 501(c)(3) publisher that never was.
Departure Announcement, and a New Resource for Conflict Resolution
Sometimes the firm announcements are easy; sometimes they are bittersweet.
After June 15, one of the great members of our team, Charli Cleland, will be leaving the firm for a new adventure. If you have been lucky enough to get to work with Charli, you will know him to be a creative, compassionate, and exceptionally skilled lawyer and advocate for our clients. We all feel very fortunate to have gotten to know Charli, and our firm has benefitted immensely from his time here. Both in his work with clients and efforts to help build and shape our firm and culture, Charli’s impact here will resonate with us for a long time. We feel very fortunate to have gotten to work with Charli, and (more than) a bit sad to say goodbye.
Now, the good news! One of Charli’s specialties here has been handling the tricky situations – the conflicts, the drama, the headed-towards-litigation – and bringing them to remarkably productive resolution. So it is fitting that Charli’s next venture is a firm focused on conflict resolution and (when unavoidable) litigation, not only for nonprofits in the midst of conflict but for for-profits and individuals too.
The firm’s name is Cleland & You and I know that we and our clients will continue to work with Charli over the years to come. It’s not easy to find an attorney experienced in conflict resolution and litigation that is also as compassionate and thoughtful as Charli, so we are thrilled to have a referral for clients in those litigation and approaching-litigation situations that extend beyond our work as tax and corporate lawyers.
So, while it’s goodbye for now, it’s also a celebration and good luck wishes to Charli!
More to come in terms of resources for nonprofits in this space soon!
Welcome to Patrick Hogan!
A quick and exciting announcement: as of today, May 15, 2023, we are thrilled to welcome Patrick Hogan to the team. Patrick is based in the Cincinnati area, and licensed in Ohio and Kentucky. Patrick has been practicing nonprofit law in the Cincinnati area for a long time, representing a wide range of nonprofit clients on the sorts of matters we talk about with clients all the time here: corporate governance, regulatory compliance, tax-exemption, and all the other fun nonprofit law topics you can see on this blog.
Patrick’s addition is a huge step forward as we continue to expand our capacity to serve nonprofit clients around the country and address the multi-state compliance needs of nonprofits with distributed workforces and operations. While operating a multistate law firm can be (very!) complicated, we look forward to building out our capacity and presence so we can carry our firm’s mission as broadly as possible. With that in mind, welcome to Patrick!
More to come on this blog soon!
Upcoming Presentations On Charitable Giving
It’s been a quiet few months on our blogs, but we hope to have some exciting updates soon.
In the meantime, we wanted to share a couple of upcoming events where we will be doing hopefully unique and fun talks on charitable giving in different parts of California:
I will be giving a presentation at the Annual Meeting of the Northern California Planned Giving Council in San Francisco on April 24, 2023. The topic will be “Taxes and Charitable Giving – What Do Gift Planners Need to Know?” I’m looking to use it to talk as non-lawyerly as possible about the tax concepts that drive certain types of giving and decision-making, and give charities a greater ability to have persuasive conversations with their donors.
My colleague, Jennifer Hubbard, and I will be giving a joint presentation at the Western Regional Planned Giving Conference hosted by the Los Angeles Council of Charitable Gift Planners in Costa Mesa, CA, which runs from May 16 to May 18, 2023. The topic will be “Gifts That Make You Call a Lawyer: Working Through Some Stressful Planned Giving Situations”. This one should be a fun one, with Jennifer and I sharing anecdotes from tricky gifts that our clients have dealt with and some strategies to try and make everyone happy (or at least make most people, mostly happy).
End of 2022: Recapping An Eventful Year
Our blog has been a little quiet lately as we have all been doing our best to keep up with what has been a very busy last few months for our clients. To commemorate our first full year as a firm, and a year where we added several new members and many great nonprofits as clients, we want to take a quick look back at some of our posts and resources from the past year.
Risk-Spotting for Fiscal Sponsors
We (Ehsan Ali and I, along with our good friend Jinna Kwak from Adler & Colvin) just gave a fun presentation on fiscal sponsorship and spotting (and resolving) risks in the context of new projects, here at the annual meeting of the National Network of Fiscal Sponsors in San Diego
It was a lot of fun and involved us throwing together some useful (if a bit chaotic thanks to me) materials. Sharing those here in case they are useful to anyone, either who made it to the conference or is just interested in fiscal sponsorship.
I’m speaking at the “Ask the Expert” session with Erin Bradrick of NEO Law Group tomorrow. Looking forward to that too!
A Modest Proposal for You (a Billionaire) to Give Your Company to Our 501(c)(4)
Most of our blog posts are for the benefit of nonprofits and the legal and accounting community that serve them. This is not one of those posts.
At this point, if you are not a billionaire*, we ask that you stop reading. No hard feelings — there will be more posts on UBIT, lobbying, and other fun tax-exemption issues for you soon. Come on back then. This is just a very special post for a special audience.
*We try to be as inclusive as possible here at MLC, so if your net worth is not yet over $1B but is at least many millions of dollars and you’re feeling bullish, we welcome you to stick around.
…
…
Are we alone now? Great.
I want to talk to you about a special opportunity we have. Namely, one where you give our 501(c)(4) affiliate the entirety of your company, save yourself hundreds of millions of dollars in taxes, and dominate our political system from the grave in perpetuity. And get yourself fawning and misleading (in your favor!) coverage in major publications.
Sound good? Excellent, let’s continue…
Labor Day Update for Non-profits: Classification and the Rights of Workers
While most primarily associate it with the end of summer and a three-day weekend, 2022 is an excellent year to recognize Labor Day for what it is: a celebration of workers and their power to organize.
With the erosion of labor law by politicians and the courts that began in the 1970’s and continued through the last administration, it is hard to believe that in 1894, this country believed in unions enough to declare Labor Day a federal holiday. Review the sweeping rights of workers introduced by the National Labor Relations Act in 1935 and consider just how far the mainstream left has retreated from economic justice – Congressional Democrats today could never pull this off.
But, if you will indulge a fleeting moment of optimism, consider the viral success of organizing efforts at Starbucks, Amazon, and other megacorporations, the 500-Day Warrior Met coal strike that continues as we speak, the sectoral bargaining that (subject to Gov. Newsom’s signature) would be created in California to regulate wages and practices in the fast food industry under AB 257, and a new Gallup poll showing a record high in terms of the public support of unions (71%! Think of how many matters of objective fact fail to get that high of a consensus!). It is possible that the decline in union membership, which closely parallels the stagnation and decline of the true wages of the working and middle class, may be reaching a turning point.
So….what does this all have to do with nonprofit law? I’m glad you asked.
