Monday, June 9, 2008
CBS' 60 Minutes had an interesting report regarding the birth of the Howard Hughes Medical Institute last night. The report points out that the multi-billion dollar 501(c)(3) started out essentially as a tax shelter for Howard Hughes but is now funding over $450 million dollars in biomedical research per year. As I watched the report I couldn't figure out if the private inurement and benefits Hughes derived from his foundation proved or disproved the necessity for the private foundation excise taxes. Professor David Brennen wrote about the case recently:
"The presence of the private foundation rules is consistent with contextual diversity because the rules permit all sorts of purposes to be advanced by tax-exempt charitable status-not only purposes that many people agree are of benefit to the public or are willing to fund, but also purposes that very few believe might benefit the public or are willing to fund. To demonstrate the benefit of private foundations, consider the example of the Howard Hughes Medical Institute-a private foundation that, at nearly $ 11 billion, is the second richest private foundation in the country. 163 The foundation originated from the personal fortune of one man, Howard Hughes, who created the foundation in the early 1950's as a personal tax shelter to protect his fortune. The stated purpose of the foundation is to do medical research. Although the foundation did no research for a number of years, its research efforts have since resulted in discovery of the genes responsible for cystic fibrosis and muscular dystrophy, a non-invasive test for colon cancer, and a drug that fights leukemia. More recently, the Howard Hughes Medical Institute has created new stem cell lines for future medical research-something that the federal government is prohibited from doing due to a Presidential directive. Without this privately funded charity, these many valuable discoveries might not have occurred."
See Brennen, A Diversity Theory of Charitable Tax exemption, 4 Pitt. Tax Rev. 1, 39 (2006)