February 12, 2013
Mirkay on U.S. Tax Exempt Organizations and U.S. Foreign Policy
Nicholas Mirkay, III has recently published what promises to be an interesting read in the North Carolina Law Review regarding the extent to which domestic tax exempt organizations must or should operate consistently with U.S. Foreign policy. The answer seems rather obvious to me. Which is not to say the question is not worth asking. I think exempt organizations have no more obligation to support foreign policy, even "clearly defined foreign policy," whatever that may be, than they do domestic policy. I distinguish legal from illegal acts, of course. My interest is piqued, though, because from the sounds of his abstract below, Mirkay seems to think U.S. exempt organizations are beholding, at least to some extent, to U.S. official foreign policy. Maybe he only means to say that U.S. exempt organizations may not violate law in their international dealings. Somehow, though, I think he means more than that. But what if the United States has a "we don't recognize the legal authority of country X to imprison a U.S. citizen" policy. Or "we don't negotiate with terrorists" policy. In either case, does that preclude a domestic nonprofit from funding a famous ex-politician's trip to that country in an attempt to win the release of the poor victim. It's not called the "independent Sector" for nothing. It's just my opinion, but even tax subsidized organizations ought not to be confined to the political mainstream in their dealings outside the country. The whole purpose of the Independent Sector, it seems to me, is to offer alternatives to orthodoxy, whether in business or government. Too often, perfectly innocent groups that happen to support the collateral victims of unpopular causes find themselves portrayed as a protagonist, one way or the other, and then dragged into whatever conflict is raging around those victims. And inevitably, it seems, the farther an exempt group strays from the proverbial "party line" the more likely it is to be accused of being "un-American" or have its tax exemption challenged. From the abstract below, I gather Professor Mirkay might differ with me to some extent. And I acknowledge a nagging concern in my own intuitive response. If exempt organizations need not adhere to or support clearly defined foreign policy, why should they be required to support clearly defined domestic public policy? Somehow I think there is a qualitative difference in domestic and foreign policy that would justify my differing approaches. I know Mirkay to be a very thoughtful scholar by the way so this is a purely and intentionally provocative, admittedly speculative (since I have not read the article yet) theoretical comment not a "dissing" of his very useful scholarship. I will certainly enjoy reading the article, I'm sure. In the meantime, here is the abstract to Globalism, Public Policy, and Tax Exempt Status: Are U.S. Charities Adrift at Sea?
This article wrestles with whether charitable organizations’ international activities can or should impact such organizations’ domestic tax exemption. It addresses the issues raised by such international activities — if those activities contravene current U.S. foreign policy or international law is a charity’s tax-exempt status adversely affected? Does such contravention implicate the public policy doctrine? On one hand, this article agrees with other legal scholars that the public policy doctrine needs congressional attention, including some codification of the doctrine to provide legislative boundaries and ensure against arbitrary and capricious application by the Internal Revenue Service (“IRS”). On the other hand, this article contends that the automatic inclusion of U.S. foreign policy and international law as components of “established public policy” would be administratively impracticable and onerous and would result in significant compliance difficulties for charitable organizations. Considering all these challenges, this article nevertheless proposes that some codification of the public policy doctrine accompanied by a listed transaction scheme, similar to those employed in other areas of the Internal Revenue Code (“Code”), could provide Congress and ultimately the IRS with the ability to target certain international activities as inherently in conflict with tax-exempt status. In addition, this article proposes that the codification of the public policy doctrine should include an excise tax regime, as an alternative to revocation, to address isolated or small violations of the public policy doctrine in relation to a charitable organization’s overall tax-exempt activities. Although these proposals are not without pitfalls and criticisms, they will nevertheless provide practical guidance to charitable organizations, thereby aiding compliance and ensuring uniform treatment of charitable organizations with international activities or operations.
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