Tuesday, November 29, 2016
Several well-established nonprofit organizations in Michigan found their longstanding holiday fundraising drives put on ice by the Michigan Attorney General. Media reports several planned fundraisers—such as fire fighters’ “fill the boot” drive for Muscular Dystrophy Association, or the Old Newsboys annual fundraiser—have already been shut down based on the Michigan Attorney General’s aggressive (and potentially unconstitutional) interpretation of a traffic law, while other organizations are worried about the potential consequences.
In a formal opinion, AG Schuette concluded that a state statute prohibiting the disruption of traffic prohibited solicitation of donations in or near roadways. In car-dependent Michigan, this is potentially a big deal that could make it harder for many nonprofits to reach their audiences using methods they have used for decades.
Friday, November 18, 2016
TaxProf Blog: Pomona College May Have Violated 501(c)(3) Tax Status To Fund Anti-Trump Student Protesters
TaxProf Blog reports on this possibility at http://taxprof.typepad.com/taxprof_blog/2016/11/pomona-college-may-have-violated-501c3-tax-status-to-fund-anti-trump-student-protesters.html.
For the University's response to this allegation, see http://taxprof.typepad.com/taxprof_blog/2016/11/pomona-president-denies-wrongdoing-as-irs-complaint-filed-against-college-for-funding-anti-trump-stu.html.
My initial take is since the rally in question happened after the election, the University has a good argument that at that point Mr. Trump was no longer a candidate but instead President elect and so the activities they funded were not political campaign intervention. I realize that Mr. Trump may not technically be President elect until the votes of the electors are officially counted by Congress, but despite some calls for the electors chosen by the voters to abandon him that is not a realistic possibility. So while one can certainly criticize the University for appearing to take sides with respect to the newly elected President, its reported activities almost certainly did not cross the legal line provided by Internal Revenue Code section 501(c)(3).
The Federal Trade Commission & National Association of State Charities Officials announced earlier this week "Give & Take: Consumers, Contributions, and Charity", a conference exploring consumer protection issues and charitable solicitations will take place in Washington DC on March 21, 2017. Comments, research, original papers and participation are sought with submission deadline of February 17, 2017. Topics sought include: How Are Donor Solicitations Evolving in the Digital Age? What Do Donors Expect When They Contribute? What Information About Charities Do Donors Find Helpful? Discovering and Reporting Possible Deceptive Charitable Solicitations: When do Donors Act? How are Consumer Purchasing Choices Influenced by Promises of Charitable Support or Social Benefit? What are Best Practices in Terms of Charitable Solicitations, Information and Accuracy?
For more information, see https://www.ftc.gov/news-events/events-calendar/2017/03/give-take-consumers-contributions-charity?utm_source=govdelivery.
Wednesday, November 16, 2016
Given the uncertainty regarding the plans of both President-elect Trump and the Republican-controlled Congress, I feel a bit like a sportswriter trying to rank college football teams before the season begins when I try to predict what the results of the 2016 election will be for the federal tax laws governing tax-exempt nonprofit organizations. With that caveat, here are my initial thoughts.
With respect to guidance from Treasury and the IRS, most of what appears in the most recent update of the 2016-2017 Priority Guidance Plan that is relevant to tax-exempt organizations (see especially pages 9-10 and, for section 170 guidance, page 14) appears non-controversial and so likely to eventually see the light of day. The one major exception is proposed regulations under section 501(c) relating to political campaign intervention, which project the Republican-controlled Congress has repeatedly suspended and likely will continue to block until the new administration gets around to killing it altogether. Another possible exception are the final regulations under section 7611 relating to church tax inquiries and examinations, although my guess is that Congress will instead simply focus on modifying or repealing the section 501(c)(3) prohibition on political campaign intervention, consistent with the campaign promises by then candidate Trump.
Speaking of Congress, university endowments likely will see continued congressional scrutiny especially in light of President-elect Trump's mentions of the issue during his campaign. Whether such scrutiny results in actual legislation remains to be seen, however. What should perhaps be of greater concern to all charitable nonprofit organizations is the possibility that the detailed tax reform plan developed by now-retired Ways and Means Committee Chairman Dave Camp may be looked to for inspiration, especially when seeking revenue-generating provisions that could help offset tax cuts elsewhere. For a detailed overview of the many proposed changes relevant to tax-exempt organizations, see the Joint Committee on Taxation Technical Explanation of those provisions. Also relevant of course are proposed changes to the charitable contribution deduction, which are concentrated in section 1403 of the draft legislation. And of course there will also likely be effects on charitable giving from any general reduction of marginal tax rates or other broad changes, such as modification or repeal of the estate & gift tax.
For consideration of likely ramifications of the election results for nonprofits beyond just changes to federal tax law provisions, here are some early predictions from others: Devin Thorpe, Forbes Contributor (collecting thoughts from various nonprofit leaders); National Council of Nonprofits; Mark Hrywna at The NonProfit Times.
Last month Princeton University announced that just days before trial was scheduled to begin it had settled the property tax exemption lawsuit brought by several local residents. As detailed in the announcement, Princeton committed to both pay millions of dollars to Princeton homeownersover six years through a tax credit and to also make over $1 million in contributions over three years to a local nonprofit to help economically disadvantaged residents obtain housing. The total cost to Princeton will be over $18 million.
While the settlement resolves Princeton's property tax exposure for recent years, it leaves open the possibility of suits challenging the university's property tax exemption at some point in the future. It also of course does not resolve the lawsuits currently pending against 35 nonprofit hospitals brought by local officials and challenging the hospitals' exemptions from property taxes, although at least two of those hospitals have already settled the claims against them. Legislation to try to resolve those suits has apparently stalled in the New Jresey Legislature.
Last month the Supreme Court of the United States denied certiorari to either the NCAA or the plaintiffs in O'Bannon v. NCAA. That decision left in place the decision by the U.S. Court of Appeals for the Ninth Circuit that found an antitrust injury to the plaintiffs from the NCAA's rules but rejected the portion of the district court's remedy that would have allowed student-athletes to receive cash payments that went beyond their full cost of attendance. Since the NCAA had already dropped its prohibition on members schools giving scholarships to student-athletes up to the full cost of attendance, the effect of the now final Ninth Circuit decision is to leave the current situation unchanged. That said, some commentators believe that the finding of an antitrust injury leaves the NCAA vulnerable to future antitrust challenges (see this ESPN story about the decision).
Tuesday, November 15, 2016
As has been documented in this space many times, state attorneys general continue to play a pivotal role in ensuring that charitable nonprofit organizations continue to fulfill the promise of their charitable label.
For example, earlier this fall The Fresno Bee reported that the California Attorney General denied a request from Saint Agnes Medical Center to reduce the amount of charity care it provides and instead ordered the nonprofit hospital to pay $2.1 million to other community nonprofit organizations that provide direct health-care services. The request was an attempt by the hospital to reduce the $7 million in charity care it is required to provide annually pursuant to a three-year old agreement with the AG's office. The hospital only provided $4.9 million in charity care in 2015, however. To make up the deficit, the AG ordered the hospital to pay $2.1 million to other tax-exempt entities that provide direct health care services in the hospital's service area by no later than October 31, 2016. While the hospital reportedly was considering its options for challenging the AG order, there are no news stories or other public reports indicating that it did so before the October 31st deadline.
And just last week, the New York Attorney General announced a settlement with the National Vietnam Veterans Foundation and two of its officers to end that purported charity's operations. The founder and president of the nonprofit, who is himself a veteran and an attorney with the U.S. Department of Vetranss Affairs, admitted that 90% of donations were paid to fundraisers, that contributors were deceived about the use of funds raised, and that he used nonprofit funds for personal expenses. In addition to the organization dissolving, he and another officer agreed to be permanently banned nationwide from handing charitable assets. CNN originally reported problems at the organization last May.
For readers who were not able to attend last month's National Association of Attorneys General/National Association of State Charitable Officials Conference, the conference materials are available here. Here was the conference's agenda:
Non-Traditional Models of Philanthropy
- Richard Feiner, Director of Corporate and Foundation Relations, Weill Cornell Medicine
Donor Advised Funds, Endowments and Donor Restrictions
- David Shevlin, Partner, Simpson Thatcher
Corporate Governance - Top Ten Issues
- Michael Peregrine, Partner, McDermott, Will and Emery LLP
Board Education: Top 10 Ways to Get Investigated and How Board Education Can Help Prevent It
- Vernetta Walker, Vice President for Programs and Chief Governance Officer, BoardSource
- James Joseph, Partner, Arnold & Porter LLP
- Janet Kleinfelter, Deputy Attorney General, Office of the Attorney General of Tennessee
New Tools for the Nonprofit Sector
- James Sheehan, Chief of Charities Bureau, Office of the Attorney General of New York
- Amanda Broun, Vice President of Programs and Practice, Independent Sector
- Meghan Biss, Senior Technical Advisor to the Director, Exempt Organizations, IRS
- Miguel A. Barbosa, Co-Founder & CEO, citizenaudit.org
CyberSecurity/Data Privacy Issues
- Paul Luehr, Managing Director and Chief Policy Officer, Stroz Friedberg
- Abigail Stempsen, Assistant Attorney General, Office of the Attorney General of Nebraska
- Alissa Gardenswartz, Deputy Attorney General, Office of the Attorney General of Colorado
Multistate Litigation: Cancer Fund of America
- Tracy Thorleifson, Attorney, Federal Trade Commission
- Michael Foerster, Senior Deputy Attorney General, Office of the Attorney General of Pennsylvania
NAAG Charities Committee: Meet the Attorneys General
- Cindy Lott, Program Director, Nonprofit Management Program, Columbia University School of Professional Studies
Volume 45, Issue 5 of the Nonprofit and Voluntary Sector Quarterly is now available. Here is the table of contents:
- , , and From the Editors’ Desk
- : Exploring the Effects of Organizational and Environmental Variables Understanding Nonprofit Financial Health
- and Evolution in Board Chair–CEO Relationships: A Negotiated Order Perspective
- , Carmen Marcuello-Servós, and Youth Volunteering in Countries in the European Union: Approximation to Differences
- and The Internet and the Commitment of Volunteers: Empirical Evidence for the Red Cross
- : Racial Prejudice Affect as a Mediating Factor Perceived Group Competition and Charitable Giving
- and What Big Data Can Tell Us About Government Awards to the Nonprofit Sector: Using the FAADS
- Book Review: Challenging the third sector: Global prospects for active citizenship by S. Kenny, M. Taylor, J. Onyx & M. Mayo and The NGO challenge for international relations theory edited by W. E. DeMars & D. Dijkzeul
- Book Review: The nonprofit world: Civil society and the rise of the nonprofit sector by J. Casey
- Book Review: Faculty work and the public good by G. G. Shaker
Volume 27, Issue 6 (December 2016) of VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations is now available. Here is the table of contents:
- Disentangling the Financial Vulnerability of Nonprofits
Pablo de Andres-Alonso, Inigo Garcia-Rodriguez & M. Elena Romero-Merino
- Exploring the Nexus of Nonprofit Financial Stability and Financial Growth
Grace L. Chikoto-Schultz & Daniel Gordon Neely
- Doing Well by Returning to the Origin. Mission Drift, Outreach and Financial Performance of Microfinance Institutions
Matteo Pedrini & Laura Maria Ferri
- Funding and Financial Regulation for Third Sector Broadcasters: What Can Be Learned From the Australian and Canadian Experiences?
Fernando Méndez Powell
- Funding Civil Society? Bilateral Government Support for Development NGOs
David Suárez & Mary Kay Gugerty
- Resource Dependence In Non-profit Organizations: Is It Harder To Fundraise If You Diversify Your Revenue Structure?
Ignacio Sacristán López de los Mozos, Antonio Rodríguez Duarte & Óscar Rodríguez Ruiz
- Resisting Hybridity in Community-Based Third Sector Organisations in Aotearoa New Zealand
Jenny Aimers & Peter Walker
- NPO Financial Statement Quality: An Empirical Analysis Based on Benford’s Law
Tom Van Caneghem
- A Review of Research on Nonprofit Communications from Mission Statements to Annual Reports
- NGOs in the News: The Road to Taken-for-Grantedness
Angela Marberg, Hans van Kranenburg & Hubert Korzilius
- Understanding Contemporary Challenges to INGO Legitimacy: Integrating Top-Down and Bottom-Up Perspectives
Oliver Edward Walton, Thomas Davies, Erla Thrandardottir & Vincent Charles Keating
- Sensegiving, Leadership, and Nonprofit Crises: How Nonprofit Leaders Make and Give Sense to Organizational Crisis
Curt A. Gilstrap, Cristina M. Gilstrap, Kendra Nigel Holderby & Katrina Maria Valera
- Organizational Crisis Resistance: Examining Leadership Mental Models of Necessary Practices to Resist Crises and the Role of Organizational Context
- Ideology, Practice, and Process? A Review of the Concept of Managerialism in Civil Society Studies
- Toward More Targeted Capacity Building: Diagnosing Capacity Needs Across Organizational Life Stages
Fredrik O. Andersson, Lewis Faulk & Amanda J. Stewart
- Dimensions of Capacity in Nonprofit Human Service Organizations
William A. Brown, Fredrik O. Andersson & Suyeon Jo
- The Effect of Attitudinal and Behavioral Commitment on the Internal Assessment of Organizational Effectiveness: A Multilevel Analysis
Patrick Valeau, Jurgen Willems & Hassen Parak
- Testing an Economic Model of Nonprofit Growth: Analyzing the Behaviors and Decisions of Nonprofit Organizations, Private Donors, and Governments
You Hyun Kim & Seok Eun Kim
- Book Review, David Fishel: The Book of the Board: Effective Governance for Non-profit Organisations (3rd edition)
- Book Review, Block, Stephen R.: Social Work and Boards of Directors: The Relationship Model
- Book Review, Judith McMorland, Ljiljana Eraković, Stepping Through Transitions: Management, Leadership & Governance in Not-for-Profit Organisations
Dyana P. Mason
- Erratum to: Dependent Interdependence: The Complicated Dance of Government–Nonprofit Relations in China
- Erratum to: Institutional Variation Among Russian Regional Regimes: Implications for Social Policy and the Development of Non-governmental Organizations
Thomas F. Remington
- Erratum to: Modernizing State Support of Nonprofit Service Provision: The Case of Kyrgyzstan
- Erratum to: France: A Late-Comer to Government–Nonprofit Partnership
- Erratum to: New Winds of Social Policy in the East
Linda J. Cook
- Erratum to: The Long-Term Evolution of the Government–Third Sector Partnership in Italy: Old Wine in a New Bottle?
- Erratum to: Poland: A New Model of Government–Nonprofit Relations for the East?
Sławomir Nałęcz, Ewa Leś & Bartosz Pieliński
Larry Catá Backer (Pennsylvania State University) has posted Commentary on the New Charity Undertakings Law: Socialist Modernization Through Collective Organizations, The China Non Profit Law Review (Tsinghua University) (forthcoming 2016). Here is the abstract:
China’s new Charity Law represents the culmination of over a decade of planning for the appropriate development of the productive forces of the charity sector in aid of socialist modernization. Together with the related Foreign NGO Management Law, it represents an important advance in the organization of the civil society sector within emerging structures of Socialist Rule of Law principles. While both Charity and Foreign NGO Management Laws could profitably be considered as parts of a whole, each merits discussion for its own unique contribution to national development. One can understand, both the need to manage Chinese civil society within the context of charity ideals, and the need to constrain foreign non-governmental organizations to ensure national control over its own development. Moreover, the decision to invite global comment also evidenced Chinese understanding of the global ramifications of its approach to the management of its civil society, and its importance in the global discourse about consensus standards for that management among states. This becomes more important as Chinese civil society try to emerge onto the world stage. This essay considers the role of the Charity Law in advancing Socialist Modernization through the realization of the Chinese Communist Party(CCP) Basic Line. The essay is organized as follows: Section II considers the specific provisions of the Charity Law, with some reference to changes between the first draft and the final version of the Charity Law. Section III then considers some of the more theoretical considerations that suggest a framework for understanding the great contribution of the Charity Law as well as the challenges that remain for the development of the productive forces of the civil society sector at this historical stage of China’s development.
Kathryn Chan (University of Victoria) has posted (on SSRN) The Function (or Malfunction) of Equity in the Charity Law of Canada's Federal Courts, 2 Canadian Journal of Comparative and Contemporary Law 33 (2016). Here is the abstract:
This essay explores what, if anything, it means for the Federal Court of Appeal to be a “court of equity” in the exercise of its jurisdiction over matters related to charitable registration under the Income Tax Act. The equitable jurisdiction over charities encompasses a number of curative principles, which the Court of Chancery traditionally invoked to save indefinite or otherwise defective charitable gifts. The author identifies some of these equitable principles and contemplates how their invocation might have altered the course of certain unsuccessful charitable registration appeals. She then considers the principal arguments for and against the Federal Court of Appeal applying these equitable principles when adjudicating matters related to registered charity status.
Matthew S. Erie (Oxford) has posted (on SSRN) Sharia, Charity, and Minjian Autonomy in Muslim China: Gift Giving in a Plural World, 43 American Ethnologist 311 (2016). Here is the abstract:
In Marcel Mauss's analysis, the gift exists in the context of a homogenous system of values. But in fact, different types of normative systems can inhabit the same social field. This is the case among Hui, the largest Muslim minority group in China, for whom the “freedom” of the gift resides in the giver's capacity to follow the rules underlying gifting, in this case, the rules of sharia. I call this capacity “minjian (unofficial, popular) autonomy.” Hui follow sharia in pursuit of a good life, but their practices are also informed by mainstream Han Chinese gift practices and by the anxieties of the security state. In their gifting practices, Hui thus endeavor to reconcile the demands of Islamic, postsocialist, and gift economies.
Monday, November 14, 2016
Benjamin W. Akins (Georgia Gwinnett College School of Business) has posted State of Confusion: A Non-Profit's Right to Withhold Information from State Regulators on SSRN. Here is the abstract:
A tempest is brewing, and the non-profit community is sounding an alarm. What started as a simple overlooked regulatory requirement has blossomed into a battlefield as Federal circuits from east to west are weighing the breadth of power state regulators may wield when dealing with charities. The trouble started when some states made the bold move to start enforcing their existing laws. More specifically, the Attorneys General in New York and California started requiring non-profits to disclose the identity of their donors before allowing solicitation activities to occur.
Initially, two organizations filed suit to enjoin the states from collecting their donor information. The charities argued that being compelled to disclose this information would result in a chilling effect, reasoning that donors would shy away from making contributions, which would cause the charities to lose support. Early on in the litigation, courts held that the states had every right to the charities’ donor information and denied injunctive relief.
Then a third organization joined the fray with a similar plan, but in the midst of a wending judicial path, a different course was forged. The organization was granted a full trial and walked away with a win on the merits. While this signaled a temporary change in fortunes for the affected charities, the inconsistent judicial results have left all parties with more uncertainty than when they began. Now, this nascent line of jurisprudence is muddled, and it is up to either the courts or Congress to bring resolution and consistency to this sensitive Constitutional issue.
Brian L. Frye (University of Kentucky), a contributing editor to this blog, has posted Art & the "Public Trust" in Municipal Bankruptcy, University of Detroit Mercy Law Review (forthcoming). Here is the abstract:
In 2013, the City of Detroit filed the largest municipal bankruptcy action in United States history, affecting about $20 billion in municipal debt. Unusually, Detroit owned its municipal art museum, the Detroit Institute of Arts (“DIA”) and all of the works of art in the DIA collection, which were potentially worth billions of dollars. Detroit’s creditors wanted Detroit to sell the DIA art in order to satisfy its debts. Key to the confirmation of Detroit’s plan of adjustment was the DIA settlement, under which Detroit agreed to sell the DIA art to the DIA corporation in exchange for $816 million over 20 years.
The bankruptcy court approved the DIA settlement as fair and in the best interests of the creditors because it found that Detroit could not, would not, and should not sell the DIA art. The bankruptcy court’s conclusion that Detroit could not sell the DIA art was wrong. It could and did sell the DIA art. But the bankruptcy court’s effective conclusion that Detroit was free to sell the DIA art on its own terms was correct.
The Detroit bankruptcy and DIA settlement suggest that art museums should be permitted and even encouraged to sell works of art in order to preserve the rest of their collections and continue operations. Professional standards that prohibit art museums from selling works of art for any purpose other than purchasing works of art are unjustified and should be abandoned.
Brian Galle (Georgetown) has posted Valuing the Right to Sue: An Empirical Examination of Nonprofit Agency Costs on SSRN. Here is the abstract:
Do stakeholder suits against managers reduce agency costs? I examine this question using a large panel of private foundation tax returns, together with hand-collected data on state-law variations in the right of donors to sue wayward nonprofit managers. In both difference-in-differences and triple-difference estimations, I find on average that standing to sue substantially increases donations and reduces the share of firm expenses devoted to administrative costs among private foundations. These outcomes are robust to other estimating strategies, such as propensity-score matching and regression adjustment with inverse probability weights. Coefficients are smaller and less precise among large operating charities. I argue that my results weigh in favor of expanded donor standing to sue, at least for foundations. My findings also suggest that the agency costs of philanthropic organizations are substantial, which has implications for, among other policy debates, tax policies that encourage perpetual-lived philanthropy.
Robert Shireman (The Century Foundation) has published Public and Nonprofit Higher Education as the Optimal Second-Best, 76 Public Administration Review 758 (2016). Here are the first two paragraphs:
A reporter who covers Wall Street recently asked me whether the for-profit college industry has hit bottom yet. She meant the stock price, but my mind went immediately to the predatory behavior—aggressive and misleading marketing and low-quality programs leading hundreds of thousands of students into crippling debt—that has plagued the industry. Those egregious practices were at their worst precisely when the stock prices of for-profit colleges were at their highest. And therein lies the market failure that burdens for-profit higher education: While in other industries consumer value and shareholder value can move in tandem, with products and services like education, the guiding light of the enterprise—the stock price—can lead to the worst outcomes for students.
Education exhibits a problem known as contract failure, in which the buyer cannot reliably evaluate the quality of the promised or provided product or service. As a consequence, profit maximization fails to produce optimal outcomes because the profit-seekers’ drive to overpromise and underdeliver is rewarded rather than punished by the market, causing other firms to emulate the bad behavior. The problem becomes particularly severe if the firms target the least sophisticated or most desperate customers, those who are least able to evaluate the quality of the service provided. Contract failure is common in enterprises with ambiguous goals like building character, developing critical thinking skills, or spiritual fulfillment, or in industries involving vulnerable populations like children (schools) and the elderly (nursing homes).
Kenya J.H. Smith (Arizona Summit) has published Charitable Choice: The Need for a Uniform Nonprofit Limited Liability Company Act (UNLLCA), 49 University of Michigan Journal of Law Reform 405 (2016). Here is the abstract:
Uniform laws serve an important role in our society, balancing state autonomy and the need to provide consistent solutions to common problems among the states. The Uniform Law Commission (ULC) is the preeminent authority that promulgates uniform laws. To date, the ULC has promulgated over 150 uniform and model acts. ULC tackles a wide array of issues, including child custody and protection, probate, electronic records, and commercial law. The ULC aims to “provide[ ] states with non-partisan, well-conceived and well-drafted legislation that brings clarity and stability to critical areas of state statutory law.”
Joannie Tremblay-Boire (Georgia State University Andrew Young School of Policy Studies), Aseem Prakash (University of Washington Political Science), and Mary Kay Gugerty (University of Washington Evans School of Public Policy & Governance) have published Regulation by Regulation: Monitoring and Sanctioning in Nonprofit Accountability Clubs, 76 Public Administration Review 712 (2016). Here is the abstract:
Nonprofits seek to enhance their reputation for responsible management by joining voluntary regulation mechanisms such as accountability clubs. Because external stakeholders cannot fully observe nonprofits’ compliance with club obligations, clubs incorporate mechanisms to monitor compliance and impose sanctions. Yet including monitoring and sanctioning mechanisms increases the cost of club membership for nonprofits. What factors account for the variation in the strength of monitoring and sanctioning mechanisms in voluntary accountability clubs? An analysis of 224 clubs suggests that stringent monitoring and sanctioning mechanisms are more likely in fund-raising-focused clubs, clubs that offer certification (as opposed to only outlining a code of conduct), and clubs with greater longevity. The macro context in which clubs function also shapes their institutional design: clubs in OECD countries and clubs with global membership are less likely to incorporate monitoring and sanctioning mechanisms than clubs in non-OECD countries and single-country clubs, respectively.
Lawrence Zelenak (Duke) has made available a draft article titled The Tax-Free Basis Step-Up at Death, the Charitable Deduction for Unrealized Appreciation, and the Persistence of Error. Here are the opening paragraphs:
As every student of the federal income tax well knows, two of the system’s most glaring conceptual errors are the tax-free step-up in basis at death and the deduction for unrealized appreciation in property donated to charity. The two errors are closely related in both character and history.
As for character, both permit taxpayers to claim benefits which should be conditioned on the recognition of income, despite the absence of any recognition event. A basis step-up at death would be appropriate if gains were taxed at death, and a deduction for the fair market value of an appreciated asset donated to charity would be appropriate if the donation triggered taxation of the appreciation. The provisions are errors because the income tax does not treat either transfers at death or transfers to charity as gain recognition events.
As for history, both mistakes originated very early in the development of the modern federal income tax, and in similar ways. In each case, Congress enacted a statutory provision so vague and general that it did not address the issue, and shortly after enactment the Treasury Department promulgated a regulation introducing the conceptual error. There was no apparent intent on the part of either Congress or Treasury to subsidize bequests of appreciated property, or to subsidize charitable donations of appreciated property more heavily than cash donations; the overly-generous rules resulted from the failure of Congress to consider the issues, and from errors of tax logic made by Treasury when it addressed the issues left open by Congress.
Hat Tip: TaxProf Blog.