What I Learned from Teaching an Exempt Organizations Class

Most of my blog posts focus on current legal developments, however, for this one I thought I would mix things up and share what I learned while guest lecturing on exempt organizations for a recent law school “Law of Higher Education” class.

Teaching this session gave me a delightful opportunity to step back and revisit some of the high-level issues that animate the field. I thought I’d share my thoughts in the hope that they will provide readers with a similar opportunity.

The focus I chose for the class was exempt organizations and money. I felt that students may not have a sense of the operations of exempt organizations and how they are influenced by the financial concerns. I also thought that using critical perspectives would draw the students into the dreaded tax session of the class. There is also a lot of good, timely material that lends itself to this approach.

I began with a recent and very interesting article from Tax Notes by Prof. Roger Colinvaux at the Catholic University of America Columbus School of Law. The article takes a dim view of the charitable sector, indicating that it is at the edge of crisis and suggesting a number of reforms to the charitable deduction, to improve transparency, and to combat abuses. We spent a good deal of the class on the charitable deduction issues, which are very relatable even for non-tax experts. I think most students agreed with the article’s strong critique of the charitable deduction as skewed to benefit the rich.

We then turned to the rationale of tax exemption generally. In doing so, we looked at the Fields v. Trustees of Princeton University case in which a group of citizens challenged Princeton University's tax exemption for real estate tax purposes, largely on the basis of the commercial activities conducted at the University, with a focus on tech-transfer. I purposely gave the students the complaint in the case, which is persuasively argued by the plaintiffs’ lawyer—but not any other information—to provoke discussion. But at least one student had done enough sleuthing to learn that Princeton settled the case for $18 million. 

We then turned to an old and delightful New Yorker article from the 1970s that describes the unlikely involvement of the New York University School of Law in the noodle business through its purchase of the Mueller Company, the pasta manufacturer, entirely with borrowed funds. I chose this because I wanted the law students to see an example of a law school itself that had engaged in investment activity and how it affected the school. Building on that theme, we then looked at the College and University Compliance Project Report from the IRS from 2013. Similarly, to the NYU article, I wanted the students to think about the types of ancillary businesses their own institution is engaged in considering the tax compliance issues the IRS might scrutinize. This was a natural segue to the legislative history of the UBIT siloing rules under the Tax Cuts and Jobs Act and a chance to chew on the question of whether the UBIT siloing actually address the issues posed in the report, and whether there were easier ways to address them with fewer side effects.

Finally, we turned to the endowment tax. I started with the thought-provoking 2017 New York Times article about the use of blockers by colleges and universities. As with any law school class, I assume many students in the seminar will likely end up working for law firms that practice in the private funds area, and I think that studying this critical take from the Times is an interesting and unique way to learn about an industry that they may soon be involved in. We then looked at some of the materials about the University endowment tax, including the analysis by Wellesley College economist Phillip Levine, showing which universities would pay, as well as the CRS report with other options. I wish we had more time for this topic, which could be a seminar session in itself.

It was great fun discussing these issues with an engaged and curious group of students. When I first learned these concepts it was at a law firm where, necessarily, we just focused on the rules rather than the policy. I enjoyed presenting them to a group of students from a policy perspective and keeping things lively by sharing some important and somewhat critical perspectives. Someday, I hope that I can expand this into a series of sessions that look at each of these fascinating and important issues in turn. I would welcome suggestions from readers of the blog interested in collaborating in this regard.

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