An Explanation of the Federal Income Tax Exemption for Charitable Organizations: A Theory of Risk Compensation
Florida Law Review, Vol. 50, No. 3, July 1998
68 Pages Posted: 11 Mar 2008
There currently is no universally-accepted theory that explains the fundamental reason underlying the deliberate and continued conferral of the federal income tax exemption on qualifying charitable organizations. This Article suggests that the rationale for the tax exemption is a separate issue from the question of whether a charitable organization deserves tax exempt treatment. As to the rationale, this Article proposes that the tax exemption is a non-volatile expected return to compensate rational charitable organizations for undertaking the provision of "inherently risky" public goods and services. With respect to the issue of deservedness, this Article looks at social and moral justifications and suggests broad guidelines based on the types of projects undertaken as an organization evolves, and the degree to which those activities comport with the organization's initial purpose constraint.
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