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Abstract:
In this report, Professor Jones argues that semantics are useful in a world in which fluency with regard to substantive partnership tax is more fantasy than reality. He uses the semantic rules applicable to partnership mergers as context. In particular, Professor Jones shows how the frequent reliance on semantics leads to an incorrect result to the extent that continuing partners in a partnership merger are incorrectly granted a nonrecognition opportunity.

Abstract:
Altruistic investment occurs when individuals make gifts and donations, and when they engage in collective activities funded by gifts and donations, for the direct benefit of others. Charitable contributions and charitable organizations embody the notion of altruistic investment. Altruistic investment, most often encouraged via tax laws, assists in the development and maintenance of capitalist markets because capitalist markets provide goods and services only to those able to pay. Discontent is inevitable in such "winner take all" systems. Discontent may perpetuate healthy competition or undermine social stability upon which market economies depend. Governments in market economies maintain social welfare programs to negate the discontent losers in a market economy inevitably experience - a discontent that could fuel economic and political revolution if not eliminated or minimized. Government welfare programs cannot be too pervasive though, because such programs impose a drag on the emerging or mature market economy and may displace capitalist motivations. Additionally, government social welfare programs often resemble protectionism and therefore engender resentment from foreign trading partners. Even as it transitions to a market economy, China continues to maintain massive social welfare programs to reduce discontent and protect the government's exclusive power. The U.S. complains that those programs have protectionist effects. More altruistic investment from abroad would eliminate China's need to maintain State welfare, but the primary reason China has not enacted tax laws that would stimulate international altruistic investment is its wariness of a vibrant, Western style independent sector that would encourage democratic ideas. Democratic ideas provoke challenges to exclusive governmental power. The U.S. government might likewise discourage altruistic investment in China precisely because such investment would decrease social discontent and indirectly strengthen the Chinese government's exclusive hold on power. This article argues that both China and the U.S. would benefit from tax laws that encourage international altruistic investment, and that the effect of such investment on both countries' mutually exclusive political goals would be neutral. Such investment would neither weaken nor strengthen the present Chinese government, but would alleviate China's need to maintain massive social welfare programs harmful to both countries mutually shared economic goals. Chinese and American tax laws should therefore be harmonized to encourage international altruistic investment in China.

Charitable contributions, China, Cross-border giving

Abstract:
Temporary and Proposed Regulation 53.4958-4T(a)(3), promulgated in 2001, allows an eventual insider to collect profits earned by a charitable organization. As long as profit taking is accomplished via a contract entered into before the recipient is an insider - even when the recipient becomes an insider by virtue of the very contract allowing for the profit distribution - the fundamental requirement that no person may earn a profit from the operation of a charity will not be violated. If, indeed, the recipient becomes an insider by virtue of the contract or arrangement by which profit is first collected, any subsequent profit taking via an unrelated contract or other arrangement will constitute a violation. Hence, the latter day insider is allowed a "first bite" at the charity's profit. Although the Service opposed the first bite rule in the first set of regulations proposed under IRC 4958, it later conceded the rule after its loss in United Cancer Council, Inc. v. Commissioner, 165 F.3d 1173 (7th Cir. 1999). In that case, Judge Posner reasoned that there was no private inurement when an outside fundraiser took (as commission and reimbursement for expenses) 95% of the contributions made to a charitable organization. The Service agreed that the fundraiser was not an insider prior to becoming the charity's exclusive fundraiser. The Service argued, not without factual support, that the fundraiser became an insider by virtue of the fundraising contract, since the contract ceded significant control over the charity's operations to the fundraiser. Judge Posner, adopting a rather literalist approach, noted that the prohibition against private inurement applies only to those who are insiders. The implication was that the right to the profit (rather than the actual taking of the profit) must occur after the recipient is an insider if a violation of the profit-taking prohibition is to be found. Instead of continuing its opposition to the first bite rule, the Service adopted it in 53.4958-4T(a)(3). Judge Posner's opinion, however, cannot be viewed as condoning profit taking. Instead, the opinion asserts that the prohibition against private inurement was the wrong theory. The prohibition against private benefit, according to Posner, is the correct theory. But the private benefit doctrine, as presently articulated in the regulations, will not prohibit first bite profit taking in most instances. Judge Posner assumed otherwise. In any event, once the Service decided to adopt the first bite rule, it should also have re-stated the private benefit doctrine in a manner necessary to effectuate Judge Posner's assumption that profit taking may be addressed under that theory. The Service did not do so. This article contains a proposal for restating the private benefit doctrine in a manner that will close the loophole created by the first bite rule. The substance of the proposal was presented to the Service at a July 31, 2001 public hearing concerning the IRC 4958 regulations.

Abstract:
In this report, Jones examines some of the questions left unanswered by the decision in Redlands Surgical Services v. Commissioner.

Abstract:
The prohibition against private inurement has been the linchpin of the law of charitable tax exemption since the first corporate tax. And yet the prohibition remains elusive and undefined. With the manifestly business-like operations of tax exempt organizations and the recent imposition of personal liability for violations of the prohibition, via IRC 4958, it is more important than ever that private inurement be identifiable and understood according to a stated principle. A detailed study of the manifestations of private inurement suggests that the heretofore unstated principle prohibits the synonymity of individual and entity wealth such as is appropriate between a partner and partnership or shareholder and corporation. Three generic forms of private inurement are identified and explained as strict accounting private inurement, incorporated pocketbook private inurement, and joint venture private inurement. Each of four modern theories regarding tax exemption relies, in one form or another, upon the prohibition against private inurement for its validity. Those theories are espoused by Professors Henry Hansmann, Rob Atkinson, Nina Crimm, Mark Hall and John Columbo. The adoption of the excess benefit scheme and the Service's apparent approval of gainsharing compensation methods suggests that profit taking is not inherently inconsistent with charitable tax exemption and thus calls into question the correctness of modern theory. Professor Evelyn Brody's work on the manner in which agency costs are similarly incurred by both nonprofit and for-profit entities seems to support the article's conclusion that profit taking, per se, is not inherently inconsistent with charitable tax exemption. After defining the generic forms of private inurement, the article builds upon Professor Brody's implication and concludes that gainsharing and other forms of profit-sharing designed to reduce inevitable agency costs of charitable operations is not inconsistent with charitable tax exemption.