Ellen P. Aprill Reviews "For Profit Philanthropy"

The incomparable Ellen P. Aprill has written an insightful review essay (which is unfortunately behind a paywall) about Dana Brakman Reiser’s and Steven A. Dean’s book, For-Profit Philanthropy: Elite Power and the Threat of Limited Liability Companies, Donor-Advised Funds, and Strategic Corporate Giving.  She characterizes the book as lamenting the “unraveling of a pact between elites and the public that fueled half a century of philanthropic achievement.”  That pact, which Reiser and Dean call “the Grand Bargain,” is found in the Tax Reform Act of 1969, which created the rules for so-called private foundations.  “This bargain, they believe, enacted rules grounded on principles of targeting, timing, and transparency to ensure that elite resources serve public rather than private ends. For them, new approaches that renounce this Grand Bargain destroy trust in elite giving.”  In other words, a lot of money doesn’t flow through private foundations as much anymore, and that’s bad for the charitable sector. 

Aprill recognizes what a massive contribution this book makes to the literature critically evaluating the outsized influence of hyper-wealthy charitable donors.  But she is critical of several aspects of the book’s analytical frame. Among other things, she argues that one should not compare charitable LLCs (the first focus of the book’s analysis) to wealthy donors giving to private foundations, but to wealthy donors giving directly to charities, which of course was never blocked by the Grand Bargain. Since 20^th Century philanthropists like John D. Rockefeller and Andrew Carnegie waited until relatively late in life to establish their philanthropic foundations, contemporary philanthropists criticized by Dean and Reiser “do one better than the Grand Bargain” by actively pursuing their philanthropic activities when they are still young.

Aprill does acknowledge that charitable LLCs do benefit from “entity-ness” while avoiding the burdens that would be imposed if they were treated as corporations that would have to qualify for some form of tax-exempt status to avoid corporate-level taxes. She argues that the value of this “entity-ness,” which enables wealthy elites to develop a prestigious philanthropic identity should not be underestimated. She proposes a rule that would automatically treat philanthropic LLCs as corporations, forcing them to seek tax-exempt status, probably under section 501(c)(4). While they would still avoid the rules that apply to private foundations, they would at least be subject to self-dealing rules, and have some transparency through the filing of Forms 990.

Notwithstanding Aprill’s excellent observations, I highly recommend the book (as does she). It is really really good.

Benjamin Leff