Mayer: Are Nonprofit Tax Exemptions and Deductions “Federal Financial Assistance”?
Two recent federal court decisions have reignited the debate over whether “Federal financial assistance” as used in four federal anti-discrimination statutes includes the tax benefits enjoyed by most nonprofit organizations. Both courts concluded that it does. While an appellate court reversed one decision, and the other case settled without appellate review, these holdings create uncertainty regarding this issue. And this uncertainty affects the more than 1.8 million tax-exempt nonprofits, many if not most of which do not receive federal financial assistance through other channels and so could safely conclude these statutes did not reach them, absent this uncertainty.
This Article reviews the relevant statutory language, existing regulatory and other administrative guidance, and court decisions and commentary addressing this issue to determine if “Federal financial assistance” as used in Title VI, Title IX, the Rehabilitation Act, and the Age Discrimination Act could plausibly be read as including tax exemption enjoyed by most nonprofits and, for charities, eligibility to receive tax deductible contributions. It determines that despite the two recent decisions to the contrary, the weight of authority supports the conclusion that it does not. This Article also considers the contrary arguments asserted by courts and commentators that have reached the opposite conclusion and explains why none of those arguments are persuasive.
This conclusion does not end the matter, however. Those same arguments suggest that Congress should expand the reach of these anti-discrimination statutes to include nonprofits that enjoy federal tax benefits, to the extent Congress can do so within its constitutional authority. Later drafts of this paper will address whether either Congress’ spending power or its taxing power could support such an expansion, and whether Congress should support such an expansion even if it could do so.
Lloyd Mayer