Public Benefit v. Private Gain

December 4, 2009

In our basic income tax classes, we teach that a taxpayer is supposed to receive a charitable contribution deduction only for transfers for charity for which the taxpayer receives no benefit in return (except, of course, for the warm glow that comes from helping others). But most of us that this distinction is not a bright line and that even the dim line is blurred in practice. In her recent article, “From the Greedy to the Needy,” published at 87 Ore. L. Rev. 1133 (2009), Professor Wendy C. Gerzog of the University of Baltimore School of Law faculty, examines the application of the public/private distinction under recent amendments to the Internal Revenue Code, decisional law, and Internal Revenue Services determinations. She makes some interesting suggestions for changes that would improve the government’s return on its investment of lost tax dollars on certain types of contributions. Here is the abstract:

In some instances when a taxpayer makes a charitable donation, the loss of revenue to the government, and the corresponding gain to the taxpayer, far exceeds the benefit to the charity. Some of these losses may be generated by government-sanctioned complex transactions and even government-created devices. This Article analyzes various charitable donations in terms of the dollars gained by the taxpayer, the dollars lost by the government, and the dollars received by the charity. After considering a sliding scale of benefits to the charities in light of the revenue losses to the government and taxpayer gains, this Article makes some normative conclusions about whether the good a donor does justifies his currently available tax benefits and then proposes some solutions.

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