Recent Articles on Nonprofits Law and Policy
The season for introducing recent scholarship to the world is upon us, and scholars of nonprofits law have been busily posting their work to SSRN. This blog entry features abstracts of SSRN postings to the Nonprofit & Philanthropy Law eJournal over the past ten days.
Eric A. Lustig of New England Law on Boston PILOTs (two postings):
The Boston PILOT Task Force One Year Later: Proposed Change and its Aftermath
This article will address two specific developments in the PILOT program. First, the PILOT Task Force issued its final report in December, 2010. Second, the Lincoln Institute of Land Policy published a comprehensive report in the fall of 2010.
A Continuing Look at Boston’s Revised Payment in Lieu of Taxes (PILOT) Program: Update Version 2.0
This article examines the first three years of results under the revised Boston Payment-in-Lieu of Taxes (PILOT) Program. The article updates two previous articles on the proposals and roll-out of the program. The revised Boston program and these results continue to be significant for several reasons. First, the Boston program is a long-standing one which is acknowledged as a national leader. Second, the creation of the task force and its resulting recommendations reflected a collaborative and transparent process. Finally, PILOT programs, particularly in the northeast, are an increasingly popular and controversial revenue producing source for local governments. The article concludes that the revised Boston program has led to a broader base of contributions from the Boston nonprofit community. The overall effectiveness of the changes may be limited by the voluntary basis of the program and the non-monolithic nature of the Boston nonprofit community.
Miranda Perry Fleischer of University of San Diego School of Law on Charity Tax Subsidies:
Libertarianism and the Charitable Tax Subsidies
Tax scholarship is largely silent about the interaction between libertarian principles and the structure of our tax system. If all taxation is indeed slavery, as Nozick suggested, why bother analyzing libertarianism for insights into our tax system? This dismissal, however, ignores the diversity of libertarian thought. To that end, this Article mines the nuances of libertarian theory for insights into one feature of our tax system: the charitable tax subsidies.
One strand of libertarianism suggests that the charitable tax subsidies are in and of themselves illegitimate. Yet several other understandings of libertarianism see a role for the state to engage in a varying amount of redistribution or to provide varying amounts of public goods. One reading of minimal state libertarianism, for example, suggests that only charities that help the very poor should be subsidized, while another implies that only organizations assisting individuals who have been harmed by past injustices should be subsidized. A strict reading of classical liberalism suggests that groups providing public goods should be subsidized regardless of whether they assist the poor, but would likely narrow the definition of what counts as a public good suffering from market failure. Only a more lenient interpretation of classical liberalism that conceives of a vibrant nonprofit sector as a public good in and of itself and an expansive reading of left-libertarianism support something akin to our current structure, in which elite cultural institutions such as the opera are subsidized even if they provide no free or discounted services to the poor.
Jacqueline R. Moss on the Charitable Contributions Deduction:
A Mismatch in Function and Form: Equity, Efficiency, and the Charitable Tax Deduction
Ostensibly, the purpose of the tax code is to raise revenue. But the tax code, like most laws, the United States tax code is a tool for social engineering, for better or for worse. Laws function not just to create stability, establish rules, or enshrine moral values; laws provide incentives for obeying the rules and disincentives for breaking them. The tax code, perhaps more than other body law, explicitly encourages and rewards behavior deemed valuable by society with tax credits and tax deductions while discouraging undesirable behavior through tax rates and the withholding of credits and deductions.
The tax code is the instrument through which government drives investment in economic activities deemed valuable, like research and development, education, small-business, and the nonprofit sector. The merit of using the tax code as a method for social engineering is not the subject of this article, but it is necessary to understand that whether one agrees or not with this use of the code, it is how it functions. Because the tax code functions to raise revenue and a policy tool, tax credits, deductions, and subsidies are frequently evaluated to determine if they are efficient – that is, do they work? Because if these tax incentives don’t work, they end up costing the government – and tax payers – a great deal of money with little to no benefit.
The creation of the individual charitable tax deduction exemplifies the debate over efficiency and the social engineering function of the tax code. The charitable deduction was created and lives on because we, through our representatives in Congress who author the tax code, have deemed charitable donations as socially and morally valuable, and thus as behavior that should be encouraged and rewarded. However, the deduction was created not only to reward and encourage charitable giving, but also to provide tax relief to wealthy Americans. The charitable tax deduction, quite intentionally, doesn’t recognize the charitable donations of all those who donate. Indeed, the charitable deduction – by design – tends to recognize and reward the charitable donations of high income individuals. In fact, as ones’ income rises, so does the value of the charitable deduction. Rewarding the wealthy but not lower-income individuals’ for their charitable contributions raises serious questions about the efficiency and equity of the charitable deduction. Surely, if the vast majority of Americans give to charity, and we, as a society, value and wish to encourage, reward, and maximize charitable giving, shouldn’t the tax code recognize the contributions of all taxpayers?
This article seeks to answer some of the questions raised by the purpose and function of the charitable tax deduction. In part one I will summarize the impact and role of the nonprofit sector and the impact of the charitable deduction upon that sector on the United States economy. Part two will examine the history and purpose of the charitable deduction and how the provision evolved since its creation in 1917. Part three will review how the charitable currently deduction functions. Part four will examine the inequity of the deduction in its treatment of similarly-situated taxpayers. Part five will explore the motivation – economic and otherwise – for donating to charity as well as the benefit of subsidizing nonprofits. Part six will examine various proposals for reform, the predicted effect of such reforms, and options to potentially maximize charitable giving among all income levels and increase equity.
Joseph Mead of Cleveland State University and Michael Pollack on Fiduciary Duties:
Directors of nonprofit organizations owe fiduciary duties to their organization, but the content of these duties — and how and when courts should enforce these duties — has long been debated among scholars and courts. This debate emerges in several areas, including the level of deference to be shown by courts to nonprofit directors (the business judgment rule), who should be allowed to sue to enforce duties (standing), and the type of relief available to prevailing plaintiffs (remedies). Existing literature debates these legal rules in isolation and in abstraction, generally failing to consider how the rules interact with each other and ignoring the empirical reality of the nonprofit sector.
Because for-profit and nonprofit corporations evolved from a common ancestor, courts generally apply the corporation law principles developed in the context of for-profit corporations to nonprofit corporations as well. But for-profit and nonprofit corporations often differ in key ways, including sources of income, constituencies, and other institutional characteristics. These differences make rote application of corporation law principles to nonprofit corporations a conceptually questionable endeavor. Rather than setting nonprofit rules through strained analogies to for-profit concepts of ownership and profit-maximization, we propose an employing an analysis of institutional features that can operate in a whole range of governance contexts, including the nonprofit sector. This approach rigorously considers opportunities for voice and exit, impact range, homogeneity, and comparative competence between boards and courts, and it does so among different types of nonprofit actors, like directors, members, employees, donors, customers, and beneficiaries.
Using this institutional analysis with for-profit corporation law as the baseline, we compare emerging legal rules in the nonprofit sector against existing empirical literature. We find that, with one exception, institutional characteristics vis-à-vis nonprofit actors are reasonably comparable to their for-profit counterparts, and we therefore place the applicable legal regime with respect to those actors on a more conceptually sound footing. In contrast, beneficiaries of a nonprofit organization tend to lack opportunities for exit or voice, face risk of considerable deprivation, and often differ considerably in relevant aspects from the individuals who manage the organization. We argue that the law should take into account the limited power of beneficiaries in nonprofit governance structures, and we analyze options for reform.
Fiona Martin of the Australian School of Business, UNSW on the Charities Act 2013:
In 2013, the Charities Act 2013 (Cth) was enacted and it came into effect on 1 January 2014. This is the first time that there has been an enactment of a statutory definition of the legal concept of “charity” in Australia. The definition is important for many areas of personal and commercial life, however one of the most significant, at least from a legal point of view, is how this definition operates in the context of Australian taxation law. This is particularly relevant in view of the fact that charities are exempt from income tax and subject to many other tax concessions at federal, state and local government level. Under Australian common law, a charitable entity was required to have a charitable purpose and be of benefit to the public. This article introduces the statutory definition and how it confirms the common law definition of charity and charitable purpose in certain instances, but also amends and expands these concepts. This discussion is provided as a context for the analysis of how the issue of public benefit has been dealt with under the statute. The article concludes with an analysis of how the Act has amended the application of the public benefit test to recipients of payments in respect of native title and traditional Indigenous lands.
JRB