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A Diversity Theory of Charitable Tax Exemption: Beyond Efficiency, Through Critical Race Theory, Toward Diversity


David A. Brennen


University of Kentucky - College of Law


Pittsburgh Tax Review, Vol. 4, 2006
UGA Legal Studies Research Paper No. 06-012

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.

Number of Pages in PDF File: 59

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

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Date posted: May 15, 2006  

Suggested Citation

Brennen, David A., A Diversity Theory of Charitable Tax Exemption: Beyond Efficiency, Through Critical Race Theory, Toward Diversity. Pittsburgh Tax Review, Vol. 4, 2006; UGA Legal Studies Research Paper No. 06-012. Available at SSRN: http://ssrn.com/abstract=901479

Contact Information

David A. Brennen (Contact Author)
University of Kentucky - College of Law ( email )
620 S. Limestone Street
Lexington, KY 40506-0048
United States
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