Ellen P. Aprill joined the faculty at Loyola Law School in Los Angeles in 1989 after having worked at the U.S. Department of the Treasury’s Office of Tax Policy. During the almost three and half decades since then, she has studied, written, and taught—law students, legal practitioners, and nonprofit grantmakers and grant recipients alike—about both the concepts underlying and the “in-the-weeds” intricacies of nonprofit tax law. She’s done so with intelligence and a keen eye for detail, combined with a personal kindness and grace.
Aprill is now a professor emerita at the school, having retired last year. Later this month, Loyola Law School will honor and celebrate her career with an event featuring presentations by authors of articles on nonprofit tax law for a forthcoming Loyola of Los Angeles Law Review symposium in tribute to her.
Aprill was kind enough to join me for a recorded conversation late last month. The just less than 15-minute video below is the first of two parts of our discussion; the second is here. In the first part, we talk about her career, the different revenue-raising and regulatory roles of the IRS, the non-revenue-related role of state attorneys general, the tax treatment of private-foundation endowments, and the challenges of following complicated IRS rules for small foundations.
Aprill and Hartmann
Nonprofits are “a bit of a stepchild” for the U.S. Internal Revenue Service (IRS), which “gets its brownie points for raising revenue, and you don’t get a lot of revenue from enforcing nonprofit law,” Aprill tells me. The Internal Revenue Code’s (IRC’s) nonprofit “provisions, especially for private foundations, are regulatory. They’re regulations in the form of taxes, they’re not for revenue-raising, so it’s quite a different task for the IRS.”
While the level of nonprofit-law enforcement varies among the states, “State attorney generals are not tasked with raising revenue. Trying to enforce the laws” according to Aprill, is “what they do. And so doing it for charities, at least for those states that have charitable arms within” their AG offices, “it’s a little bit more of a fit.”
Specifically, we also discuss IRC §§4940 and 4945. In 2019, Congress revised §4940’s excise taxes on the income of private-foundation endowments. Prior to the change, the tax was 2%, but could decrease to 1% if a foundation increased its distributions. In ’19, it became a flat 1.39%.
“The reason it got changed is that private foundations that increased their distributions felt caught by this provision,” Aprill says, because it had the unintended consequence of discouraging a foundation from significantly increasing its grantmaking in any given year out of fear that its five-year average payout would increase to the point where it would be harder to qualify for the 1% rate in future years. After private foundations asked “for many, many years to at least change the provision, if not eliminate it,” the flat 1.39% rate “is the compromise, or this is what Congress decided.”
And §4945, which lists “taxable expenditures” by private foundations, “is sort of a potpourri of ‘no-no’s’ that are not necessarily completely coherent,” as Aprill describes it—including among other no-no’s, electioneering and gifts to individuals under most circumstances.
Large foundations’ “fancy lawyers get paid to” interpret and help apply the section, she notes, “but I do worry about small foundations.”
In the conversation’s second part, Aprill talks about the taxation of higher-education endowments, comparing and contrasting the rationale for it to that for taxing private-foundation endowments, and explores some tax ramifications of other, newly emerging forms of giving.