TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Thursday, June 7, 2018

Galle: Grand Canyon University’s Misleading Non-Profit Status

GCUBrian Galle (Georgetown), Grand Canyon University’s Misleading Response to My Testimony:

Last week, on May 23, I testified at a meeting of the National Advisory Council on Institutional Quality and Integrity (“NACIQI”). Among my remarks were comments on what I described as the erroneous grant of nonprofit status to a new “charity,” Grand Canyon University. Following that testimony, GCU has issued a press release claiming that I misstated the facts and law related to its exemption application. GCU’s release is, as best I can tell, wrong in almost every respect. ...

As I had blogged here, I told NACIQI that the conversion of GCU into “New GCU,” a nonprofit organization, was a “just a mistake,” notwithstanding the fact that the IRS has apparently approved GCU’s application for 501(c)(3) status. Statute and IRS regulation prohibit charities from being operated for the benefit of their insiders or other private parties, and GCU — which pays 50% of most of its gross revenues, plus $48m or so in annual interest payments, to its for-profit “old GCU” partner — clearly contravenes that rule. My testimony goes into some more detail about the application of the IRS’s published guidance to the facts of GCU’s conversion. ...

I argued to NACIQI that a fundamental danger these conversions present is that they threaten to mislead the public about the true nature of schools like Grand Canyon, papering over a profit-seeking motive with a “nonprofit” label. If their recent press release is any indication, my worries about GCU misleading the public are not entirely unfounded.

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You know, I get tired of people failing to accept that non-profits have revenue expectations just as for-profits seek profit. Although it is inherent in a non-profit not to benefit its directors, officers and insiders, they pay salaries, bonuses, etc., just like for-profits. If someone is attempting to perpetuate a fraud through a non-profits is one thing; but, where a non-profit is required to purchase or lease space, pay employees etc. in pursuit of its mission then it is otherwise indistinguishable from a for-profit.

Posted by: Tom N. | Jun 7, 2018 10:03:06 AM