The federal tax deduction for charitable contributions is sometimes defended on the theory that charitable organizations provide public goods that may be under-produced by the government. This understanding of tax-exempt nonprofits imagines charities as existing in a sphere that is separate and distinct from the government. Professor Ellen Aprill challenges the conventional view, arguing that government and charities are better understood as “resting on a continuum rather than in separate spheres.”
Aprill begins by reviewing the basics of the charitable contribution deduction under I.R.C. § 170. Contributions to 501(c)(3) nonprofits, commonly called charitable organizations, are undoubtedly the most familiar deductible donations. But Aprill points out that section 170 also authorizes a deduction for contributions or gifts to the United States, provided that the gifts are used for “exclusively public purposes.” In other words, taxpayers can claim a charitable contribution deduction for gifts to the federal government itself. Congress can also authorize federal agencies to accept charitable deductions, and in some cases it has done so. In a sense, the federal government and its agencies represent an extreme end of the spectrum of what Aprill calls “federal charitable entities.”
Federal charitable entities take other forms as well. Congress has established its own 501(c)(3) charitable organizations “with various degrees of governmental features.” For example, some of these organizations are subject to the Freedom of Information Act—but not all of them. Some receive appropriations from Congress, others do not. Many include government officials on their boards, and some have official missions to conduct government responsibilities. On the other hand, these Congressionally established 501(c)(3)s also have features of traditional charitable organizations.
For example, they are generally “free to use volunteers, fundraise, invest funds as they like and spend them when, and to some extent, how they like.” For these reasons, federal charitable entities may be more efficient in their operations than purely governmental agencies. However, some of these hybrid entities also lack features associated with traditional charitable organizations. For example, some federally chartered charitable organizations are more restricted in their lobbying activities than traditional charities. Others simply lack oversight and guidance as to governance because they are not subject to the laws of any state.
To illustrate some of the ways that these Congressionally established 501(c)(3)s can vary in form, Aprill provides a detailed comparison of two well-known organizations: the Smithsonian Institution and the American Red Cross. The Smithsonian, which is comprised of 19 museums, the National Zoo, and nine research facilities, has two sources of funding: federal appropriations and income from charitable gifts. The Smithsonian is treated like a federal agency for some purposes, but not for others—and it is not governed by the law of any state.
In contrast, the American Red Cross, which “shoulders both wartime and peacetime duties,” does not receive federal appropriations. Instead, it is entirely funded by charitable gifts. This is true even though the American Red Cross “has direct governmental responsibilities that the Smithsonian does not.” Like the Smithsonian, the American Red Cross is sometimes treated as a governmental agency, but not always. And like the Smithsonian, the American Red Cross was originally chartered without reference to the laws of any state—though it was re-chartered in 1905 (and on two other occasions) to create the organization under the laws of the District of Columbia.
Perhaps the most salient similarity between the Smithsonian and the American Red Cross is that both have faced issues with organizational governance. Two federal reports on the Smithsonian noted that the organization did not “follow best nonprofit practices,” with one expressing concern “’about the tendency of the Institution to embrace those federal regulations it finds convenient while ignoring others.’” The American Red Cross has also been criticized for poor governance, particularly after the 2001 9/11 attack and its handling of Hurricane Katrina in 2006. Those events prompted Congress to re-charter the organization (its fourth charter) and dramatically overhaul its governing structure.
In addition to the case studies of the Smithsonian and the American Red Cross, Aprill also describes other Congressionally-established 501(c)(3) organizations, including the Kennedy Center, the Corporation for Public Broadcasting, the CDC Foundation, the National Park Foundation, and the Legal Services Corporation. She explains the governments’ history of chartering private foundations, including the Carnegie Institution and the Carnegie Foundation for the Advancement of Teaching. And she discusses so-called Title 36 Corporations, which are another category of federally chartered nonprofits—some of which pre-existed their federal charters. These include some well-known charities like the Boy Scouts of America, the Girl Scouts of America, the Future Farmers of America, and the American Olympics Committee.
Aprill provides rich descriptions of the varied—and often chaotic—landscape of federal charitable entities. Her account complicates existing theories about nonprofits by demonstrating how the charitable sector sometimes overlaps with the public sector, creating categories of hybrid entities that lack consistent regulation or treatment under the law. Ultimately, Aprill sets forth a modest recommendation that Congress “review the gift acceptance policies” of governmental agencies to ensure that such policies are “comprehensive, consistent, and up to date.” She also proposes that Congress amend the charters of its 501(c)(3)s “to provide that D.C. nonprofit law governs,” and she recommends moving the so-called Title 36 entities “into the titles of the U.S. Code related to the subject matter they address.”
For me, this Article answered a lot of questions I had about how organizations like the Red Cross and NPR relate to the federal government. It also raised some new questions. I got the sense that Aprill has more to say about the politics behind the creation of federal charitable entities, the policy implications of allowing the federal government to operate through charities, and the extent to which federal charitable organizations compete with traditional charities—topics that are mentioned in the article, but which could each constitute stand-alone research projects. I look forward to seeing more research on federal charitable entities, and I recommend this article to any tax scholar interested in nonprofit law.