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Agents Without Principals: Regulating the Duty of Loyalty for Nonprofit Corporations Through the Intermediate Sanctions Tax Regulations

30 Pages Posted: 2 Jun 2012  

Carly B. Eisenberg

Nixon Peabody LLP

Kevin Outterson

Boston University School of Law

Date Written: May 31, 2012

Abstract

Delaware corporate law imposes a duty of loyalty on officers and directors as a mechanism to regulate and deter self-dealing transactions. In nonprofit corporations, however, there are generally no shareholders with direct financial incentives to monitor against self-dealing. In the absence of shareholders and other principals, Congress and the IRS have articulated duty of loyalty rules for nonprofits that reach far beyond those applied to the for-profit world — most prominently the § 4958 intermediate sanctions. This article identifies the persons who owe a duty of loyalty to a nonprofit corporation, the applicable fiduciary standards for violating the duty of loyalty, and the remedies, procedures, and exoneration provisions under these fiduciary rules. While § 4958 and Delaware corporate law cover similar territory, they take remarkably different paths. By comparing the Tax Code with Delaware corporate law, it is readily apparent that, in the absence of shareholders, tax rules police the duty of loyalty for nonprofits more strictly than Delaware corporate law.

Keywords: tax exempt, fiduciary duty

JEL Classification: K22, K32

Suggested Citation

Eisenberg, Carly B. and Outterson, Kevin, Agents Without Principals: Regulating the Duty of Loyalty for Nonprofit Corporations Through the Intermediate Sanctions Tax Regulations (May 31, 2012). Pepperdine Journal of Business, Entrepreneurship & The Law XXX, 2012 (Forthcoming); Boston Univ. School of Law, Law and Economics Research Paper No. 12-28; Boston Univ. School of Law, Public Law Research Paper No. 12-28. Available at SSRN: https://ssrn.com/abstract=2071230

Carly B. Eisenberg

Nixon Peabody LLP ( email )

United States

Kevin Outterson (Contact Author)

Boston University School of Law ( email )

765 Commonwealth Avenue
Boston, MA 02215
United States

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