Wednesday, November 20, 2013
Illinois Law Professor and fellow blogger John D. Colombo has recently posted the following papers on SSRN, listed by title and accompanying abstract.
Here is the first:
The IRS University Compliance Project Report on UBIT Issues: Roadmap for Enforcement ...Reform...or Repeal?
The recent completion of the IRS College and University Compliance Project again raises questions about the rationale for and purpose of the Unrelated Business Income Tax (UBIT). This paper addresses these questions in three main parts. Part I reviews existing UBIT law, particularly as it applies to colleges and universities. The second part is a short summary of the IRS findings on UBIT compliance. The final part then examines whether the UBIT should be reformed or even repealed. The paper concludes that while expansion of the UBIT to an all-inclusive commerciality tax (a proposal I have made in previous papers) is still my preferred solution, absent such reform, Congress should consider simply repealing the UBIT and relying on disclosure and non-tax incentives to control commercial activity by charities.
And the second:
Private Benefit: What Is It -- And What Do We Want It to Be?
Beginning with the landmark decision American Campaign Academy v. Commissioner in 1989, the Internal Revenue Service has used the “private benefit” doctrine as a primary tool to police the activities of charitable organizations exempt under Code Section 501(c)(3). Unfortunately, the doctrine literally has no doctrinal content. Unlike its sibling, the private inurement doctrine, the private benefit doctrine has no statutory basis in 501(c)(3). Though the IRS claims the doctrine flows from the 1959 Treasury Regulations, it is a claim that is questionable given the language used, and in any event, this interpretation of the regulations appears not to have been “discovered” until some at least a decade after the regulations were promulgated. This paper reviews the history and application of the private benefit doctrine, and suggests a specific normative test for application of the doctrine to situations involving a “failure to conserve” charitable assets.
And the third:
The Role of Redistribution to the Poor in Federal Tax Exemption for Charities
Over the past several years, many commentators have suggested that federal tax exemption for charities should be limited to organizations that help the poor – that is, organizations with a redistributive mission. This paper reviews and comments on three areas of existing federal exemption law where the redistribution view either already controls tax benefits or is being pushed by policy makers as a change to existing law: the push for a charity care standard for exempting nonprofit hospitals, the current university endowment debate, and a hodge-podge of rulings relating to what I will call “middle class charity” in which the IRS has denied exemption to nonprofit organizations providing services to the middle class (as opposed to the poor). Part I provides a brief introduction to the history of the redistribution concept in federal exemption under 501(c)(3) prior to the current regulations introduced in 1959. Part II then provides a summary of current law and proposals in the three areas described above (nonprofit hospitals, programs aimed at the middle class, and university endowments). Part III then turns to some analysis and observations. The main observations are (1) that the redistributive push in the areas identified by this paper is almost certainly bad policy and inconsistent with the IRS’s supposed adoption of the broad common-law view of charity in the 1959 regulations; (2) that the redistributive paradigm seems to pop up most in areas where the organizations in question carry on activities that look very similar to commercial enterprises – in other words, what we may be seeing is the use of the redistribution paradigm to help distinguish charitable services from ordinary for-profit business; (3) limiting the definition of charitable for tax exemption purposes to relief of the poor is inconsistent with the historical definition of charity; and (4) the effort to limit the scope of tax exemption/deductibility to redistribution to the poor is inconsistent with virtually all the theories proposed to explain tax exemption and essentially adopts one particular view of distributive justice that may not be appropriate in formulating tax benefits for charities. Until tax policy chooses an underlying rationale for charitable tax exemption, however, the inconsistencies in applying exemption are likely to continue.