Friday, July 29, 2005
Richard Schmalbeck (Duke) has published Reconsidering Private Foundation Investment Limitations, 58 Tax L. Rev. 59 (2004). Here is the Introduction:
This Article suggests reconsideration of the two mainstays of investment regulation of private foundations-the excess business holdings rules of § 4943, and the jeopardizing investment rules of § 4944. I argue that reconsideration reasonably would lead to reforming the former and repealing the latter. These suggestions run against a prevailing mood that could be described as a deregulation counter-revolution, characterized by regret that efforts to "unleash" securities markets, public utilities, and the telecommunications industry, among others, may have overshot their marks.
The arguments in this Article, however, are not based on an assumption that private foundations are now so well-behaved that self-regulation can replace the heightened scrutiny to which they have been subject since 1969. Rather, it is simply that the particular tools incorporated into the Code in § 4943 and §4944 in part were ill-conceived from the outset, and, in any event, are ill-suited to their tasks today. They impose regulatory costs without producing significant regulatory benefits.
The Article proceeds as follows: Section II provides historical context; Section III outlines the current penalty provisions; Section IV provides the rationale given for these rules and Section V critiques this rationale; Section VI discusses the costs associated with the penalty provisions and Section VII explains my conclusions