The Tax Law of Charitable Giving. Bruce R. Hopkins

It is not likely to be tried again soon.

      From time to time, as noted, a tax credit is considered as an alternative or a supplement to the charitable contribution deduction for individuals. Tax credits of this nature, also as noted, can be costly from the standpoint of the federal fisc. Further, studies have shown that a federal charitable tax credit would significantly alter the allocation of gift dollars to types of charities in relation to the way these dollars are directed to charity under the current federal income tax charitable contribution deduction system.

NOTES

      1 1 See Part Two.

      2 2 See Part Three.

      3 3 See Part Five.

      4 4 See, e.g., ch. 23.

      5 5 Companion books by the author provide a summary of the law concerning tax-exempt organizations as such (Tax-Exempt Organizations), planning considerations for tax-exempt organizations (Planning Guide), IRS examinations of tax-exempt organizations (IRS Audits), and regulation of the charitable fundraising process (Fundraising). Governance of tax-exempt organizations is the subject of Hopkins & Gross, Nonprofit Governance: Law, Practices, & Trends (Hoboken, NJ: John Wiley & Sons, 2009). These bodies of law are reviewed in less technical detail in Hopkins, Starting and Managing a Nonprofit Organization: A Legal Guide, 7th edition (Hoboken, NJ: John Wiley & Sons, 2017). All of these areas of the law (and others) are also covered in the Bruce R. Hopkins' Nonprofit Law Library, an e-book published by John Wiley & Sons in 2013.

      6 6 The term nonprofit organization is used throughout, rather than the term not-for-profit. The latter term is used, however, in the federal tax setting, to describe activities (rather than organizations) whose expenses do not qualify for the business expense deduction. Internal Revenue Code of 1986, as amended, section (IRC §) 183. Throughout this book, the Internal Revenue Code is cited as the “IRC.” The IRC constitutes Title 26 of the United States Code.

      7 7 A discussion of these sectors appears in Ferris & Graddy, “Fading Distinctions among the Nonprofit, Government, and For-Profit Sectors,” in Hodgkinson, Lyman, & Associates, The Future of the Nonprofit Sector, ch. 8 (San Francisco: Jossey-Bass, 1989). An argument that the sector should be called the first sector is advanced in Young, “Beyond Tax Exemption: A Focus on Organizational Performance versus Legal Status,” in id. ch. 11.

      8 8 See Tax-Exempt Organizations ch. 12.

      9 9 The Supreme Court wrote that a “nonprofit entity is ordinarily understood to differ from a for-profit corporation principally because it ‘is barred from distributing its net earnings, if any, to individuals who exercise control over it, such as members, officers, directors, or trustees’” (Camps Newfound/Owatonna, Inc. v. Town of Harrison, 520 U.S. 564, 585 (1997), quoting from Hansmann, “The Role of Nonprofit Enterprise,” 89 Yale L.J. 835, 838 (1980)).

      10 10 One commentator stated that charitable and other nonprofit organizations “are not restricted in the amount of profit they may make; restrictions apply only to what they may do with the profits.” Weisbrod, “The Complexities of Income Generation for Nonprofits,” in Hodgkinson et al., ch. 7.

      11 11 Norwitz, “The Metaphysics of Time: A Radical Corporate Vision,” 46 Bus. Law. (no. 2) 377 (Feb. 1991).

      12 12 The federal law of tax exemption for charitable organizations requires that each of these entities be organized and operated so that “no part of . . . [its] net earnings . . . inures to the benefit of any private shareholder or individual.” IRC § 501(c)(3).

      13 13 IRC §§ 501(c)(9), (17), and (21) (employee benefit trusts), and IRC § 501(c)(7) (social clubs). See Tax-Exempt Organizations chs. 18, 15, respectively.

      14 14 This broad definition carries with it the connotation of philanthropy. E.g., Van Til, “Defining Philanthropy,” in Van Til & Associates, Critical Issues in American Philanthropy, ch. 2 (San Francisco: Jossey-Bass, 1990). Also Payton, Philanthropy: Voluntary Action for the Public Good (New York: Macmillan, 1988); O'Connell, Philanthropy in Action (New York: The Foundation Center, 1987).

      15 15 The complexity of the federal tax law is such that the charitable sector (using the term in its broadest sense) is also divided into two segments: charitable organizations that are considered private (private foundations) and charitable organizations that are considered public (all charitable organizations other than those that are considered private); these nonprivate charities are frequently referred to as public charities. See Tax-Exempt Organizations ch. 12.

      16 16 McGovern, “The Exemption Provisions of Subchapter F,” 29 Tax Law. 523 (1976). Other overviews of the various tax exemption provisions are in Hansmann, “The Rationale for Exempting Nonprofit Organizations from Corporate Income Taxation,” 91 Yale L.J. 69 (1981); Bittker & Rahdert, “The Exemption of Nonprofit Organizations from Federal Income Taxation,” 85 Yale L.J. 299 (1976).

      17 17 H. Rep. No. 72, 78th Cong., 1st Sess. 17 (1928).

      18 18 Lapin, “The Golden Hills and Meadows of the Tax-Exempt Cemetery,” 44 Taxes 744 (1966).

      19 19 “Comment,” 27 Iowa L. Rev. 128, 151–155 (1941).

      20 20 H. Rep. No. 704, 73d Cong., 2d Sess. 21–25 (1934).

      21 21 These are the charitable, educational, religious, scientific, and like organizations referenced in IRC § 501(c)(3).

      22 22 See Tax-Exempt Organizations § 1.3.

      23 23 In 1894, Congress imposed a tax on corporate income. This was the first time Congress was required to define the appropriate subjects of tax exemption (inasmuch as prior