TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Tuesday, January 31, 2006

Halperin Presents Taxation of Investment Income of Charities Today at Penn

Halperin_4 Penn_1Daniel Halperin (Harvard) presents As to Taxation of Charities -- The Issue Is Investment Income today at Penn as part of its Tax Policy Workshop Series.  Here is the Conclusion:

Whether the investment income of public benefit organizations should be taxed depends upon a value judgment regarding the trade off between current and future spending. Given an income tax which taxes investment income, the preference for deferred spending for charitable purposes may be greater than the preference for current spending. However, for the organization to be neutral between current and future spending, investment income may have to be exempt. Such exemption could encourage savings without the potential harm of a universal consumption tax, at least in some circumstances. Exemption would be reinforced if it were felt that the tax law should support or at least be neutral with respect to building an endowment. On the other hand, one might want a bias in favor of current spending if it is felt that under the current system endowments and charitable savings are likely to be larger than public policy would suggest.

Even if investment income were to be taxed, income from related activities is probably appropriately exempt. Here accumulation of an excessive endowment is not a concern. In many cases, exemption could be justified as consistent with normal tax principles. Even if tax would normally apply, as might be the case of funds used for a capital expenditure, exemption could facilitate the expansion of the organization, which in some circumstances could be desirable public policy.

The workshop begins at 4:30 p.m. EST in Gittis 1.

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