The Tax Law of Charitable Giving. Bruce R. Hopkins

the profit motive and offers the consumer the “trust element” that the for-profit organizations cannot always provide.

Although the economic demand-side theory is fascinating and undoubtedly contains much truth, it probably overstates the aspect of consumer demand and downplays historical realities, tax considerations, and human frailties. The nonprofit organization antedates the for-profit corporation, and many of today's tax-exempt organizations may be nonprofit because their forebears started out as such. In addition, the forces of pluralism of institutions and organizations continue to shape much of the contemporary independent sector.

(c) Freedom of Association

      Tax exemption for nonprofit membership organizations may be viewed as a manifestation of the constitutionally protected right of association accorded the members of these organizations. There are two types of freedom of association. One type—termed the freedom of intimate association—is the traditional type of protected association derived from the right of personal liberty. The other type—the freedom of expressive association—is a function of the right of free speech protected by the First Amendment to the U.S. Constitution.

By application of the doctrine of freedom of intimate association, the formation and preservation of certain types of highly personal relationships are afforded a substantial measure of sanctuary from unjustified interference by government.⁸⁰ These personal bonds are considered to foster diversity and advance personal liberty.⁸¹ In assessing the extent of constraints on the authority of government to interfere with this freedom, a court must make a determination of where the objective characteristics of the relationship, which is created when an individual enters into a particular association, are located on a spectrum from the most intimate to the most attenuated of personal relationships.⁸² Relevant factors include size, purpose, policies, selectivity, and congeniality.⁸³

The freedom to engage in group effort is guaranteed under the doctrine of freedom of expressive association⁸⁴ and is viewed as a way of advancing political, social, economic, educational, religious, and cultural ends.⁸⁵ Government, however, has the ability to infringe on this right when compelling state interests are served that are unrelated to the suppression of ideas and that cannot be achieved through means significantly less restrictive of associational freedoms.⁸⁶

These two associational freedoms have been the subject of a U.S. Supreme Court analysis concerning an organization's right to exclude women from its voting membership.⁸⁷ The Court found that the organization involved and its chapters were too large and unselective to find shelter under the doctrine of freedom of intimate association. Although the Court also conceded that the “[f]reedom of association therefore plainly presupposes a freedom not to associate,” it concluded that the governmental interest in eradicating gender-based discrimination was superior to the associational rights of the organization's male members.⁸⁸ In general, the Court held that to tolerate this form of discrimination would be to deny “society the benefits of wide participation in political, economic, and cultural life.”⁸⁹

§ 1.4 STATISTICAL PROFILE OF CHARITABLE SECTOR

The charitable sector and the federal tax law with respect to it have a common feature: enormous and incessant growth. This expansion is reflected in all of the principal indicators pertaining to this sector, including the number of organizations, the sector's asset base, the amount of charitable giving and granting, its annual expenditures, its share of the gross domestic product, and the size of its workforce. There is, however, this direct correlation: as the nonprofit sector expands, so too does the body of federal and state law regulating it. No end to either of these expansions is in sight.⁹⁰

Over the years, there have been many efforts to analyze and portray the nonprofit sector. One of the first of these significant undertakings, utilizing statistics, conducted jointly by the Survey Research Center at the University of Michigan and the U.S. Census Bureau, was published in 1975 as part of the findings of the Commission on Private Philanthropy and Public Needs.⁹¹ The data compiled for the commission's use were for 1973. Contemporary charitable giving statistics are explored in the following pages, but one striking basis of comparison cannot be resisted at this point. Charitable giving in that year was $26 billion, while for 2019 the amount was nearly $450 billion.⁹²

Research of this nature developed for the commission spawned recurring statistical portraits of the sector. One of the most comprehensive of these analyses is that provided in the periodic almanac published by the Urban Institute.⁹³ Others include a fascinating portrait of the “third America”⁹⁴ and the annual survey of charitable giving published by the Giving USA Foundation.⁹⁵ The IRS's Statistics of Income Division collects data on tax-exempt organizations.⁹⁶ Further, various subsets of the nonprofit sector are the subject of specific portrayals.⁹⁷

The nonprofit sector in the United States is not uniformly labeled; it goes by many names. In addition to nonprofit, adjectives used include tax-exempt, voluntary, nongovernmental, independent, and voluntary.⁹⁸ (In the author's view, nonprofit sector endures as the sturdiest of the terms.) In its most expansive definition, the nonprofit sector comprises all tax-exempt organizations and some entities that cannot qualify for exemption. The Independent Sector organization defined the independent sector as all charitable 99 and social welfare organizations.¹⁰⁰

As Independent Sector defined the sector, it is comprised of “many, varied” organizations, such as “religious organizations, private colleges and schools, foundations, hospitals, day care centers, environmental organizations, museums, symphony orchestras, youth organizations, advocacy groups, and neighborhood organizations, to name a few.” This analysis continued: “What is common among them all is their mission to serve a public purpose, their voluntary and self-governing nature, and their exclusion from being able to distribute profits to stockholders.”¹⁰¹

Any assessment of any consequence of the nonprofit sector includes a discussion of the number of organizations in the sector. Nonetheless, it is “surprisingly difficult to answer the seemingly simple question, How many nonprofit organizations are there in the United States?”¹⁰² The simple answer is: millions. There are “several million” nonprofit organizations,