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DEPARTMENT OF VETERANS AFFAIRS
Office of the General Counsel
Washington DC 20420
June 28, 1993
In Reply Refer To: 023
O.G.C. Advisory 23-93
VA District Counsel (344/02)
11000 Wilshire Blvd.
Los Angeles, CA 90024
SUBJ: Solicitation of funds by Research Corporations.
QUESTIONS PRESENTED: A. May the Long Beach Research Corporation solicit charitable
contributions if its tax exempt application states that it cannot do
so?
B. May the Long Beach Research Corporation sponsor courses with
the profits (or losses) from such courses going to, or coming from,
the administrative account of the corporation?
C. Assuming that the tax exempt application is granted permitting
solicitation, may the Long Beach Research Corporation engage in fund
raising activities by solicitation from drug companies; hiring a
professional fund raising agency; or participation as a donee in the
Combined Federal Campaign (CFC)?
DISCUSSION:
1. You asked us to concur in a draft opinion letter you are
sending to Dr. Jule Moravec, the Director of the Long Beach VA
Medical Center. You told us in oral conversations that the Long Beach
Research Corporation ("Research Corporation") desires to sponsor
nationwide research and education courses. Also, you said that the
Research Corporation desires to engage in fund raising activities by
soliciting drug companies, hiring a professional fund raising agency
and by participating as a donee in the Combined Federal Campaign.
Your draft letter to Dr. Moravec (the "Moravec Letter") states that
the Research Corporation's (Internal Revenue Code) section 501(c)(3)
tax exempt application expressly says that it would not solicit
charitable contributions. Presumably, neither the tax-exempt
nonprofit corporation application nor the Research Corporation bylaws
prohibit it from entering into contracts with drug companies for
non-charitable purposes in order to raise funds to conduct research.
Finally, you state in the Moravec Letter that the Research
Corporation Board of Directors includes VA employees as required by
38 U.S.C. 7363(a)(1).
Tax Exempt Application.
2. If the Research Corporation application for tax exemption
prohibits the solicitation of charitable contributions, then the
Research Corporation cannot solicit charitable contributions. If it
attempted to do so, its tax exempt status would be jeopardized.
Assuming the corporation was established more than three years ago,
loss of its tax exempt status would require the Secretary to dissolve
the Research Corporation. 38 U.S.C. 7361(b). However, if the Research
Corporation desires to amend its tax exempt application to permit
solicitation, it can legally solicit support for research activities.
Sponsorship of Courses.
3. Research Corporations can sponsor courses that "facilitate"
research because such courses are consistent with their statutory
authority. 38 U.S.C. 7362. They cannot, however, conduct for-profit
general education seminars unrelated to research because such
seminars are not authorized pursuant to section 7361. See also, Op.G.C. 18-91, (5-1-91)(discussing limitations of statutory authority
of research corporations' to invest funds).
Fund raising Activities.
4. We believe that VA employees serving as directors of the
Research Corporation can solicit funds from drug companies. Title 38 U.S.C. 7361(a) states that the Secretary may authorize the
establishment of a nonprofit corporation "to provide a flexible
funding mechanism for the conduct of approved research at the medical
center." Section 7364 states that such research corporations can
"accept gifts and grants from, and enter into contracts with,
individuals and public and private entities solely to carry out the
purposes of this subchapter." Section 7366(d) requires the Secretary
to submit an annual report (to the appropriate committee of both the
Senate and the House of Representatives) regarding the research
corporations including "the amount of the contributions made to each
such corporation."
5. These statutory provisions authorize the research corporations
to receive funds and contributions from outside sources to facilitate
research. Statutory authority to act necessarily includes all
necessary and reasonable actions in connection therewith. See
generally, Sutherland Stat. Const. 45.04(4th Ed.). If these
corporations are authorized and established to receive funds and
contributions, then solicitation of such funds and contributions is a
necessary and reasonable action in connection therewith. Prohibiting
solicitation by research corporation employees and ex officio board
of director members (38 U.S.C. 7363(a)(1) enumerates the three VA
employees who must serve on the research corporation board of
directors, ex officio) would frustrate the very purpose of the
statute: to create a flexible funding mechanism for the conduct of
approved research at VA. Moreover, VA policy which prohibits, in
general, the solicitation of contributions does not preclude
solicitations which are not designed to augment appropriations. MP-4,
Part VII, DM&S Supplement, 4.04(k). Research Corporation
solicitations do not augment appropriations. See generally, Op.G.C.
33-90, (6-30-90) (research corporations are not Federal organizations
for purposes of Gramm-Rudman). Finally, 38 U.S.C. 7365 states that
any research corporation created pursuant to the subchapter is "to
the extent not inconsistent with any Federal law, ...subject to the
laws of such State [of incorporation]." State laws do not prohibit
nonprofit corporations from soliciting for funds. Therefore, under
state law, there is no restriction on solicitation of funds by
nonprofit corporation officers and employees on behalf of the
nonprofit corporation. Both the federal law and state law are
consistent in this instance since the state law places no ethical
restraints on such activities and the federal law does not prohibit
solicitation by the research corporation. In sum, research
corporations are authorized to engage in solicitation of funds under
both federal and state laws.
6. Title 38, United States Code, 7366(c)(1) states that each
member of the board of directors and each employee of the research
corporation "shall be subject to Federal laws and regulations
applicable to Federal employees with respect to conflicts of interest
in the performance of official functions." Since the corporation may
conduct fund raising activities (as discussed in paragraph 5) in
order to receive funds and contributions, then fund raising is an
official function of the corporation. Therefore, the only fund
raising definition under the new standards of ethical conduct for
employees of the executive branch that applies here is the definition
of "Fund raising in an official capacity" appearing at 5 C.F.R.
2635.808(b). That definition states that "an employee may participate
in fund raising in an official capacity if, in accordance with a
statute, Executive order, regulation or otherwise as determined by
the agency, he is authorized to engage in the fund raising activity
as part of his official duties." The research corporation statute,
pertinent sections referred to above, authorizes such activity as to
its officers and employees. In sum, any corporate officer or employee
including those who may be VA employees may solicit funds for the
corporation even from prohibited sources such as drug companies.
Overall, we believe this conclusion is consistent with the
congressional intent to provide a flexible funding mechanism for the
authorization and establishment of the research corporations. See
generally, H.Rept. No.100-373, 100th Cong., lst Sess. 4 (1987).
Professional Fund raising Agency.
7. Since fund raising is an official activity of the research
corporation which is permissible under the conduct regulations
discussed above, the research corporation can hire a professional
fund raising agency to do so.
Participation as Donee in the Combined Federal Campaign.
8. We concur with your conclusion that the Research Corporation
can participate as a donee in the Combined Federal Campaign and
confirmed this interpretation with a desk officer at the Office of
Personnel Management, the agency responsible for approving
applications of participants of the Combined Federal Campaign. The
desk officer told us that applications are reviewed once a year
during early January and February followed by approvals in March. He
also told us that because of the overwhelming number of applicants,
many potential participants' applications are denied.
HELD:
Research corporations can not solicit charitable contributions if
their tax exempt application prohibits them from doing so. Research
corporations can only sponsor programs that are related to research
activities. Research corporation employees and VA employees serving
on the research corporation Board of Directors ex officio may engage
in fund raising activities and solicit funds. The research
corporation may engage a professional fund raising agency. The
research corporation can be considered a participant donee under the
Combined Federal Campaign subject to approval by the Office of
Personnel Management.
Mary Lou Keener
General Counsel
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