Monday, February 24, 2014
In a recent column in Forbes, Howard Gleckman asked why the US Olympic Committee is tax-exempt. After all, he notes, "The law says tax exempt status is granted to groups that 'foster national or international amateur sports competition.' But do the hyper-marketed modern games even remotely fit the ideal of amateur sports?" A bit later, he follows with the observation that "By almost any standard, [the USOC] is a commercial enterprise. It exists primarily to help organize a bi-annual made-for-TV entertainment extravaganza. Yes, it provides some support for athletes (though surprisingly little). But its real business is marketing itself and playing its part in a two-week orgy of athletic commercialization."
Welcome, Howard, to the modern world of charitable tax-exemption. Substitute "college sports" in the quotations above and you would have an equally accurate description. And it would hardly be inaccurate to say "By almost any standard, private nonprofit hospitals are commercial enterprises." (And at least some research universities may be heading in that direction). So what might we do about the commercialization of the modern charity?
One thing we could do is take the "primary purpose" rule seriously and apply it with an honest recognition of the way certain organizations operate in the modern world. A charity is supposed to engage in activities that "primarily" futher a charitable purpose. Does anyone really believe that a typical private nonprofit hospital "primarily" pursues a charitable purpose? I certainly don't - private nonprofit hospitals' primary mission is to provide the highest-quality health care they can for a fee. That's an admirable mission, one I heartily support, and one that our nonprofit hospitals mostly excel at; but it is in no way, shape or form "charitable." I could say the same thing about the Olympics or college athletics - these activities, whatever their origins, are hardly about "amateur" athletics any more. The Olympics are a showcase for pros at their sports (men's hockey, anyone?) and big-time college athletics (Division I men's basketball and FBS football) are nothing more than minor leagues for the pros.
I don't know why it is so hard for tax policy to recognize that activities change over time, and things that may once have been charitable might not be today. Nonprofit hospitals were unquestionably charities in the 1800's, when they were essentially homeless shelters staffed by religious volunteers. That model no longer exists. The Olympics were at one time truly about amateur athletics, just as college sports at the enactment of the UBIT in 1950 mostly involved real student-athletes. No longer. Things change, but we refuse as a policy matter to re-examine charitable exemptions in light of changed circumstances. From time to time there have been proposals to require charities to "re-qualify" for exemption every so often (every 5 years, or 7 years or 10 years, for example). But these proposals won't "get it right" if we don't update our views about whether certain activities are charitable or not.
So, Howard, I have an answer to your question: analytical inertia. Our views of charitable activities seem frozen in time. Until we get over it, commercial activities will continue to dominate certain "charities" that are not charities at all.