Tuesday, April 19, 2011
The Article argues that the federal tax law framework relating to charitable organizations is decaying. Through an overview of the historical development of the law relating to charity in the 20th century, the Article shows that the statutory law has passively accommodated significant growth of the charitable sector without demanding any rigor of the sector in the form of positive requirements or quantitative measures. This has led to growth without meaningful oversight – a recipe for problems. The Article then provides an overview of many of the scandals that engulfed the sector during the early 21st century and shows that the scandals not only seriously eroded the “halo” effect of charitable organizations and enabled passage of reform legislation, but also illustrate the consequences of unchecked growth. The Article then discusses the central features of current law that are under pressure in part because of this growth without oversight: the breadth of the charitable standard, a regulatory framework based on the distinction between public charity and private foundation, and a facts and circumstances and all-or-nothing approach to enforcement. The Article analyzes the legislation enacted between 2004-2006, and in 2010 (as part of health care reform), and finds that although these efforts were not comprehensive reform, the legislation nevertheless planted seeds indicative of a shifting legislative policy toward charity, one that favors more substantive distinctions among charities for exemption purposes, undermines the current basis for distinguishing among charities, and points toward brighter enforcement lines. The Article concludes that we are asking too much of current tax law, and suggests a new approach based on developing different standards for the charitable tax benefits in order to focus attention more directly on the tax system’s support for the charitable sector.