Scott Pilutik

I am an attorney and consultant living and working in Manhattan, focusing primarily on church/state constitutional law. I'm a recognized expert on the Church of Scientology organization. I also have strong interests in intellectual property law where it intersects with emerging media, and free speech.

I support the efforts of the Americans United for Separation of Church and State, the Freedom From Religion Foundation, the National Lawyers Guild, the ACLU, Creative Commons, and the Electronic Frontier Foundation. I am a member of the New York County Lawyers Association and the New York State Bar Association. I also enjoy (watching) hockey and (doing) photograhy.

Online I can be found on Facebook, Twitter. My resume can be viewed here. I can be reached by phone at 212.645.6241 or by e-mail at pilutik[at]gmail.com.

are non-profits finally being scrutinized?

Judges and congress are (finally) becoming skeptical of non-profits, according to the NY Times, which cites a Minnesota State Supreme Court case from December (Under the Rainbow Child Care Ctr., Inc. v. County of Goodhue, 741 N.W.2d 880 (Minn. 2007)), which held that a nonprofit day care agency here had to pay property taxes because it was not charitable.

The agency, the Under the Rainbow Child Care Center, charges the same price per child regardless of whether their parents are able to pay the full amount themselves or they receive government support to cover the cost.

Hopefully this ruling portends a larger shift away from the routine deference shown to non-profits by all the responsible parties; congress, the IRS, and the courts. The rationale behind granting tax exemption to non-profits is economic–non-profits perform tasks benefiting the public that would otherwise fall on the government. If exempt entities are not charitable, the rationale for granting the exemption evaporates.

The article primarily discusses this shift as it has been applied to hospitals, day care centers, and universities (Harvard is sitting on $35b), but Churches are also being scrutinized, thanks to Senator Charles Grassley’s (R-Iowa) Tax Committee, which, last November, requested the finances of six televangelists, including a few of my favorites, Benny Hinn and Creflo Dollar.

This shift toward greater scrutiny of supposedly charitable entities has brought some obvious opposition–as the Times article points out:

These two elements of the ruling have profoundly alarmed nonprofit groups in Minnesota and elsewhere.

“There are between 300 and 500 nonprofit groups in this state that could lose their property tax exemptions under that ruling,” said Jon Pratt, executive director of the Minnesota Council of Nonprofits, which represents about 2,000 of the state’s roughly 3,400 charities.

I’ll disclaim that I’ve not read the relevant law to coherently laud or criticize the Minnesota case, but I do welcome the shift toward greater scrutiny–if enough charitable entities unjustly lose their exempt status (or, in a state setting, are forced to pay property tax) through an broad reading of Under the Rainbow Child Care Ctr., the legislature can step in and correct it.

But this shift toward greater scrutiny is apparently quite real, and the non-profits and churches are disgruntled and scared. While I was poking around for thoughtful commentary (as opposed to the predictable screeching from those directly affected–see the Believers Stand United site, run by televangelist Kenneth Copeland http://www.believersstandunited.com), I came across lawyer and non-profit expert Jack B. Siegel, who asks [in response to an IRS determination letter of rejection to an Evangelical church's 501(c)(3) application]:

Why can’t Congress and the Service leave it to the business judgment of boards and donors? If donors continue to give to those charities that are accumulating wealth, the donors must see value in such accumulations.

Answer: Because the ultimate beneficiaries of charity are not donors. but the public.

More thoughtful commentary on this issue from Melissa Rogers.

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