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Abstract:
This symposium issue of the Georgia Law Review provides an excellent opportunity to showcase both the subject matter of the January 2007 AALS section program and the growing field of legal study on matters concerning nonprofit and philanthropy law. Professor Garry Jenkins' article, included in this symposium, will provide foundational information concerning the section program. The panelists from the section program, including Professors Evelyn Brody, Susan Gary and Lizabeth Moody, have contributed to this symposium by submitting articles that address the general program topic of state-level reform of nonprofit law. Each panelist represents a different private entity in the United States that is attempting, to some degree, to take a serious look at state law and its affect on nonprofit institutions. These reform entities include the American Law Institute (ALI), the National Conference of Commissioners on Uniform State Laws (NCCUSL) and the American Bar Association. But first, this short introduction to the symposium will outline other aspects of this growing field of law. It will describe the creation, development and purpose of the new AALS section, highlight the new Social Science Research Network (SSRN) abstracting journal on nonprofit law, and identify one of the major educational institutes that focuses on nonprofit and philanthropy studies.

nonprofit, philanthropy, tax eempt, AALS, estate, corporation

Abstract:
A Diversity Theory of Charitable Tax Exemption is an initial attempt at understanding the charitable tax exemption beyond the borders of the law and economics vision of efficiency. Efficiency is the hallmark of many of the existing theories of charitable tax exemption. This is especially true of theories promulgated prior to 1990 by such notable scholars as Boris Bittker and Henry Hansmann. A Diversity Theory of Charitable Tax Exemption articulates a rationale for the charitable tax exemption which is based, not on efficiency, but on notions of diversity and creativity. This alternate theory is called contextual diversity. Contextual diversity theory posits that the charitable tax exemption is a means of diversifying the market and, thus, allowing for more creative and wealth producing opportunities. Further, the exemption is subject to contextual constraints that act to limit the scope of charitable activity. Thus, the article explains how the law and economics concept of efficiency fails to fully rationalize many aspects of the charitable tax exemption that are not amenable to an efficiency analysis. Using an alternate theory of law termed Law and Market Economy Theory, the article moves beyond efficiency analysis and uses a variety of interpretive frameworks to more fully explain the charitable tax exemption. As an example, the article uses Critical Race Theory as a means for understanding certain aspects of the charitable tax exemption from a different perspective, such as the public policy doctrine. The public policy doctrine prohibits charitable activity which is inconsistent with established public policy. Among the implications of contextual diversity is that the public policy doctrine be eliminated and replaced by a rule that explicitly prohibits invidious racial discrimination by charities while still permitting charities to engage in race-based affirmative action.

charity, tax, critical race, law & economics, nonprofit

Abstract:
Efficiency is often used as a proxy for discussing nonprofit charity effectiveness, but such ostensibly objective measures can limit any true understanding of charities' potential. Although efficiency is the hallmark of many theories of charitable tax exemption and is sometimes useful, the conceptual framework falls short as a way to judge a nonprofit charity's worth or legitimacy. I would argue that the role of a nonprofit charity is to build contextual diversity in society and to continuously seek inclusion and justice. This role is a basic facilitator of the nation's democratic ideals. But facilitating justice may sometimes require that charities disrupt current norms and even act inefficiently. The third sector, as it is sometimes called, is supposed to continually recreate "the commons," or provide for public benefit. And clearly, this focus on collective benefit doesn't serve the best interest of individuals; it serves the public at large or a disenfranchised minority. This discussion proposes a concept called "contextual diversity" as an alternative understanding of the charitable tax exemption. The concept is based on two theoretical constructs that better fit as justifications for the charitable tax exemption and for the value of nonprofit work in general: (1) law and market theory and (2) critical race theory.

law & economics, tax exempt, corporation, critical race, nonprofit

Abstract:
This Essay examines the question of how state and local government officials should consider federal tax law principles, like the commerciality doctrine, when they challenge state and local property tax exemptions that rely, at least in part, on tax-exempt charitable status for federal income tax purposes. In particular, the Essay uses the example of Continuing Care Retirement Communities (CCRC's) to consider tax-exempt law's commerciality doctrine in an attempt to discern distinctions between "homes for the aged" that are "charitable" (and thus entitled to exemption) and those that are too commercial and, thus, not entitled to exemption. In fact, one might say that this issue of the tax exemption eligibility of CCRC's is a version of John Colombo's quandary about the commerciality doctrine in general - "when . . . commercial activity will be considered 'in furtherance of' an exempt purpose as opposed to simply 'primarily' operating a business." Ideally, these distinctions between exempt and non-exempt homes for the aged should be helpful to state and local tax officials who, in the face of shrinking revenues and increasing expenses, seek to deny tax exempt status to "homes for the aged" that are charitable primarily because they look commercialized and do not necessarily serve the poor.

aging, nonprofit, tax exempt, corporation, elderly, commerciality doctrine, state and local tax

Abstract:
For nearly twenty years IRS has been attempting to limit a nonprofit organizations' ability to financially exploit its name property by imposing an income tax on any income generated by the exploitation. Two primary methods nonprofits attempt to exploit their name are: (1) selling mailing lists containing the organization members' names to third parties (mailing lists) and (2) authorizing, for a fee, the issuance of credit cards to members and nonmembers that carry the organization's name and logo (affinity cards). Both the United States Tax Court and several federal courts have reviewed IRS' regulation of each of these name exploitation methods. However, the Supreme Court has yet to definitively address the limits of the IRS' ability to tax this exploitation income. Thus, the limits of IRS' ability to tax a nonprofit's sale of its membership lists or affinity card arrangements are unclear. While several recent federal cases help to clarify and define the issue, there remain cases around the country, which may be appealed. This Article is an attempt to outline the nonprofit tax issues relative to name exploitation and make some predictions as to how the U.S. Supreme Court might, and should, rule relative to these issues.

nonprofit & philanthropy law

Abstract:
In 1993, the Treasury Department issued a proposed regulation outlining when money received by a charity from a corporate sponsor would be subject to federal income tax. In defining the phrase trade or business , the proposed regulation addresses the extent to which sponsorship payments to charities will be treated by the Treasury as having been made in return for advertising on behalf of the sponsor, thus subjecting the payment to income tax. In the proposed regulation, the Treasury concludes that a charity's use of a corporate sponsor's name in the title of a charitable event is a mere acknowledgment and, thus, no advertising trade or business exists. However, if the charity - as a condition of accepting the sponsor's money - displays the sponsor's slogan at the event, an advertising trade or business exists to the extent that the slogan promotes the sponsor's product or service. So far so good.

Curiously, the Treasury's examples of acknowledgments in the proposed regulation do not logically follow from its definition of acknowledgment therein. What makes this situation even more preposterous, and rather revealing, is that the Treasury took the exact opposite position for several years preceding the proposed regulation. Why the change in position? Who knows? From a policy standpoint, the proposed regulation obviously goes too far - at least farther than what a fully informed populous would expect. If finalized, it will likely divert significant advertising revenues of businesses away from traditional advertising mediums such as non-public radio, newspaper, and television. Consequently, to the extent that these diverted dollars are treated by the Treasury as for acknowledgments, as opposed to advertisements, the Treasury will likely lose significant tax dollars.

Such political pandering by the Treasury to taxpayers is clearly bad policy - especially where the sole basis for complaint by the taxpayer is the desire to avoid legitimate Congressionally enacted tax liability. Nonetheless, the Treasury's action is perfectly legal. Analysis of relevant Supreme Court cases reveals that a federal agency's interpretation of a term or issue that Congress has failed to address in legislation will be upheld if reasonable. Indeed, treasury regulations reviewed by the Supreme Court are customarily invalidated only when Congress has defined the statutory term or issue addressed by the regulation. Here, Congress has not defined the term advertising, nor the term trade or business. Thus, the Treasury's interpretation would likely be upheld as a valid exercise of regulatory authority.

nonprofit & philanthropy law

Abstract:
1984 was a watershed year in administrative law jurisprudence in the United States. That year, the Supreme Court outlined the degree of deference courts must show to agency regulatory interpretations of statutes. The Court concluded in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc. that an administering agency's reasonable regulatory interpretation of a statute must prevail over a differing judicial interpretation in two instances: (1) when Congress fails to unambiguously address the issue involved or (2) when the agency's interpretation is consistent with Congress' intentions. In so doing, the Court broke new ground in administrative law by asserting that the judiciary must yield to the reasonable legal and policy determinations of an executive agency. Despite contrary assertions, the Chevron directive remains unchanged today after more than a decade of subsequent Supreme Court rulings.

Analysis of several post-Chevron cases indicates that every major Supreme Court case since 1984 involving the validity of a Treasury regulation is consistent with Chevron. Indeed, since 1984 every challenged Treasury regulation interpreting a statute in which Congress failed to address a specific tax issue has been upheld by the Court. In fact, no Supreme Court case since 1984 could be discovered in which the Court invalidated a Treasury regulation on the grounds that it was an unreasonable interpretation of a statute. Several post-Chevron Supreme Court decisions, however, rejected the Treasury's application of a tax regulation to a particular factual situation. Additionally, there have been times when the Court failed to defer to the Treasury's non-regulatory interpretations. However, at least with respect to Treasury regulatory interpretations, the Supreme Court's review of tax cases since 1984 has been consistent with Chevron.

administrative law, tax law & policy

Abstract:
Race and Equality Across the Law School Curriculum: Tax Exempt Law chronicles the possibilities for racial examinations of tax exempt law in the law school environment, either through teaching or scholarship. The Article, prepared in conjunction with Association of American Law School's Summer 2004 "Racial Justice" professional development conference, relates the racial study of tax exempt law to the broader critical race theory movement in law generally. Thus, the Article highlights critical race theory's initial focus on constitutional law issues and traces its development to a focus on more neutral-looking areas of law such as tax law. The Article then outlines the basic scholarship concerning tax law generally as it relates to race, demonstrating how this general tax and race scholarship has effectively exposed racial bias in the federal tax imposed on wages and income of individuals. Finally, the Article outlines a laundry list of race issues in tax exempt law that might also contribute to improved notions of justice and fairness in the law. For example, the Article discusses the public policy limitation imposed on tax exempt charities, the role that racial diversity might play on tax exempt organization boards of directors and the current statutory prohibition on racial discrimination by tax exempt social clubs.

Abstract:
2002 Eleventh Circuit survey of federal taxation law.

federal taxation

Abstract:
The Equal Protection Clause of the Fourteenth Amendment generally acts as a legal limit on the permissible bounds of government action. Accordingly, public universities and other government entities are constitutionally prohibited from engaging in acts that violate equal protection of the laws. The Supreme Court recently reinforced this point when it ruled, in two related cases, that public universities may consider the race of applicants when making admissions decisions, so long as an applicant's race does not amount to a deciding factor when granting admission. By its very terms, the constitutional limitation imposed by the Equal Protection Clause only directly applies to government entities, not private ones. Private entities, however, are subject to other legal limits on the use of race as a factor that are not themselves constitutional limits but approximate to them. One of these pseudo-constitutional legal limits for private actors - at least those that are tax-exempt pursuant to section 501(c)(3) of the Internal Revenue Code - is the tax law's public policy limitation. Hence, the Supreme Court has ruled that a private university that discriminates against black people is not entitled to section 501(c)(3) tax-exempt status. This Essay examines the impact of the Supreme Court's recent decisions concerning the permissible use of race by public universities on the scope of the public policy prohibition against racial preferences by private tax-exempt entities.

The Essay concludes with the observation that the IRS has taken the position that the Supreme Court's constitutional law decisions have a significant bearing on whether race-conscious affirmative action policies violate tax law's public policy limitation. Accordingly, Grutter and Gratz provide a clear indication that the IRS will not soon deny or revoke the tax-exempt status of charities that engage in the type of race-conscious affirmative action engaged in by the University of Michigan Law School. So long as a tax-exempt charity, a private university for example, limits its use of race to being one of many factors in making affirmative action decisions, the IRS is unlikely to challenge the action as violative of established public policy.

The Essay further concludes that the IRS is not necessarily bound to continue viewing constitutional law as determinative of what is, and is not, established public policy. Indeed, the IRS may consider factors that do not stem from constitutional jurisprudence when determining if a particular charity's race-conscious affirmative action violates the public policy limitation. Conceptually, the public policy limitation does not need to be co-extensive with the totality of constitutional jurisprudence. Thus, the IRS might properly conclude that the type of affirmative action the Court invalidated in Gratz as unconstitutional might still be consistent with established public policy if engaged in by a non-governmental private tax-exempt actor. Based on such an approach, the IRS could determine that, even though public universities are prohibited from using race as a deciding factor of admission, private universities are not necessarily prohibited from using race in this way. Such an approach would be entirely consistent with Justice Powell's view of tax-exempt charities as contributing to a vigorous, pluralistic society and not acting on behalf of Government in carrying out governmentally approved policies.

nonprofit & philanthropy law

Abstract:
The Equal Protection Clause of the Fourteenth Amendment generally acts as a legal limit on the permissible bounds of government action. Accordingly, public universities and other government entities are constitutionally prohibited from engaging in acts that violate equal protection of the laws. The Supreme Court recently reinforced this point when it ruled, in two related cases, that public universities may consider the race of applicants when making admissions decisions, so long as an applicant's race does not amount to a deciding factor when granting admission. By its very terms, the constitutional limitation imposed by the Equal Protection Clause only directly applies to government entities, not private ones. Private entities, however, are subject to other legal limits on the use of race as a factor that are not themselves constitutional limits but approximate to them. One of these pseudo-constitutional legal limits for private actors - at least those that are tax-exempt pursuant to section 501(c)(3) of the Internal Revenue Code - is the tax law's public policy limitation. Hence, the Supreme Court has ruled that a private university that discriminates against black people is not entitled to section 501(c)(3) tax-exempt status. This Essay examines the impact of the Supreme Court's recent decisions concerning the permissible use of race by public universities on the scope of the public policy prohibition against racial preferences by private tax-exempt entities.

The Essay concludes with the observation that the IRS has taken the position that the Supreme Court's constitutional law decisions have a significant bearing on whether race-conscious affirmative action policies violate tax law's public policy limitation. Accordingly, Grutter and Gratz provide a clear indication that the IRS will not soon deny or revoke the tax-exempt status of charities that engage in the type of race-conscious affirmative action engaged in by the University of Michigan Law School. So long as a tax-exempt charity, a private university for example, limits its use of race to being one of many factors in making affirmative action decisions, the IRS is unlikely to challenge the action as violative of "established public policy."

The Essay further concludes that the IRS is not necessarily bound to continue viewing constitutional law as determinative of what is, and is not, "established public policy." Indeed, the IRS may consider factors that do not stem from constitutional jurisprudence when determining if a particular charity's race-conscious affirmative action violates the public policy limitation. Conceptually, the public policy limitation does not need to be co-extensive with the totality of constitutional jurisprudence. Thus, the IRS might properly conclude that the type of affirmative action the Court invalidated in Gratz as unconstitutional might still be consistent with established public policy if engaged in by a non-governmental private tax-exempt actor. Based on such an approach, the IRS could determine that, even though public universities are prohibited from using race as a deciding factor of admission, private universities are not necessarily prohibited from using race in this way. Such an approach would be entirely consistent with Justice Powell's view of tax-exempt charities as contributing to a "vigorous, pluralistic society" and not acting on behalf of Government in carrying out governmentally approved policies.

Abstract:
Charities and the Constitution is a follow-up to The Power of The Treasury, 33 U.C. DAVIS L. REV. 389-447 (2000) and Tax Expenditures, Social Justice and Civil Rights, 2001 B.Y.U. L. REV. 167 (2001). Collectively, these three articles both highlight problems with tax law's public policy limitation and offer possible solutions to those problems. The public policy limitation provides that tax-exempt charities violating established public policy must lose their 501(c)(3) tax exemption. Charities and the Constitution examines a central problematic aspect of the public policy limitation - the lack of specific standards to be used by Service in determining whether a policy is sufficiently established for purposes of the limitation. The Service recently intimated that it will rely primarily on constitutional law doctrine as its standard to ascertain established public policy with respect to private charities. However, the Constitution generally concerns permissible activities by government, not private actors like charities. Thus, this Article asks: should constitutional limitations on government action necessarily limit the Service's ability to determine established public policy for private charities? This Article argues that the Service's primary reliance on constitutional law decisions is inappropriate for a variety of theoretical and practical reasons, not the least of which is that the Constitution was never intended to limit private activity without specific congressional authorization.

nonprofit & philanthropy law

Abstract:
In Bob Jones University v. United States, the Court concluded that Treasury is empowered to enforce established public policy with respect to charities by revoking 501(c)(3) tax-exempt status of charities that violate established policy. Under this public policy power, Treasury has revoked the tax exemption of charities that discriminated against blacks, whose members engaged in civil disobedience against war, and that were involved in illegal activity. However, the point at which a public policy is sufficiently established for purposes of the public policy power is unclear. For example, could the Treasury, relying on recent anti-affirmative action decisions, revoke a charity's 501(c)(3) tax-exempt status on the ground that the organization violated established public policy by engaging in affirmative action? Probably not. This Article, using affirmative action as the example, highlights some of the problems and possible dangers with Treasury's public policy power. The Article's thesis is that the Court reached the correct result in Bob Jones by opposing invidious discrimination against blacks. However, in so doing the Court gave the Treasury unreasonably broad power that lacks a sound legal basis and could inhibit appropriate affirmative action efforts. The Article concludes that Congress should offer a legislative solution.

Abstract:
This Article is a follow-up to The Power of The Treasury: Racial Discrimination, Public Policy and "Charity" In Contemporary Society, 33 U.C. Davis L. Rev. 389-447 (2000), which used affirmative action as an example to highlight problems with Treasury's public policy power - the power to revoke 501(c)(3) tax exemption of charities that violate "established public policy." Tax Expenditures and Civil Rights offers a possible solution to many of the problems highlighted in Power of the Treasury. Using tax expenditure theory as a guide, Tax Expenditures and Civil Rights proposes that courts interpret "federal financial assistance" as used in many civil rights statutes to include tax benefits received by tax-exempt charities. The Supreme Court has never addressed this matter. However, several lower federal courts have addressed the issue and reached different conclusions about whether FFA includes tax benefits. This Article's proposal is one way to combat invidious discrimination based on race, gender, disability and age by charities that does not involve the many problems highlighted in Power of the Treasury. The proposal also offers the advantage of a well-developed body of law that more clearly delineates when race preferences are illegal discrimination and when they are permissible affirmative action.