Nonprofit Law Prof Blog

Kaplow, Optimal Income Taxation and Charitable Giving

Louis Kaplow (Harvard) has posted Optimal Income Taxation and Charitable Giving, 38 Tax Policy and the Economy (forthcoming). Here is the abstract:

The philanthropic sector is highly consequential, particularly in the United States, and the most important policies directed toward this sector are tax policies. Yet most economic analysis of the optimal tax treatment of charitable giving is ad hoc, treating it as a subject unto itself. This article advances a different approach: integrating the tax treatment of charitable giving into the optimal income tax framework that has been developed over the past half century. The results supplement or overturn conventional wisdom. Notably, the analysis of revenue effects and the purported efficiency of subsidies to charitable giving is recast, focusing on the pertinent externalities rather than the direct revenue costs, which themselves are irrelevant in the basic case. Distributive concerns regarding donors are also misplaced because distributive effects can be offset by tax rate adjustments to the broader income tax and transfer system. These ideas are developed systematically, with an emphasis on intuition rather than technical formalism. The analysis also broadens and deepens the assessment of externalities from charitable giving, which are more numerous and heterogeneous than is generally recognized. Finally, refocusing our understanding of the optimal tax treatment of charitable giving identifies important subjects requiring further research.

Lloyd Mayer

Ryan, Cy Près and Religious Discrimination

C.J. Ryan (Louisville) has posted Nearer to Thee: Cy Près and Religious Discrimination. Here is the abstract:

In the law of charitable trusts, courts wield exceptional power with respect to two equitable remedies—cy près and the closely related doctrine of deviation—they can confer on trusts that have purposes or terms rendered ineffectual. Either doctrine allows the court to prolong the trust’s life, perhaps forever. Historically, the invocation of these remedies was anathema to American courts. But increasingly, they have contemplated the possibility of extending the life of charitable trusts through application of these doctrines. In many ways, the evolution of these doctrines is owing to the jurisprudence involving trusts created for the benefit of a religious congregation or charity. Yet, this connection and the implications of judicial decisions regarding the right to these remedies has not garnered academic attention until now.

In this study, I analyze the extent to which courts have applied these equitable remedies to religious purpose charitable trusts via an econometric analysis of a universe of cases with a published opinion from an American court from the nation’s founding through 2019. This study provides a novel analysis of these equitable remedies and the history of religious purpose charitable trusts along a considerable timeline in American history. First, it explores how the equitable remedies of cy près and deviation were shaped by and shaped the caselaw around religious purpose charitable trusts, elucidating the simultaneity of the recognition of each as valid remedy and trust. Second, it examines the possible bias of the courts in awarding these remedies to certain religious groups but not others, ultimately finding that trusts created for the benefit of Catholic churches and charities were deemed less worthy of these remedies by the courts, all else equal. These findings have implications not only for understanding the application of these equitable remedies more deeply but also for uncovering the implicit and overt bias of the courts in cases where it has no actual basis.

Lloyd Mayer

Silvia, Child & Witesman, A New Look at Hansmann’s Contract Failure Theory

Chris Silvia, Curtis Child, and Eva Witesman (all BYU) have published The Value of Being Nonprofit: A New Look at Hansmann’s Contract Failure Theory, Nonprofit and Voluntary Sector Quarterly (subscription required). Here is the abstract:

In his theory about the role of nonprofit enterprise, Henry Hansmann suggested that nonprofit status provides important information to consumers in low-information environments. In this article, we assess whether consumers use nonprofit status to form purchasing preferences as Hansmann predicted. Using choice-based conjoint analysis, we find that under different types of low-information circumstances, study participants prefer goods and services provided by nonprofits to those offered by businesses. In the absence of additional information (such as customer ratings and third-party certifications), nonprofit status serves as an important value signal to consumers. In the presence of additional information, nonprofit status is still relevant in some cases, although it becomes less so. The findings suggest that additional forms of information do not necessarily displace the value to consumers of information about organization type. We reflect on these findings in light of Hansmann’s thesis.

Lloyd Mayer 

Slenn, Fraudulent Donations to Charity: The Gifts That Keep on Giving

David J. Slenn (Akerman LLP) has published Fraudulent Donations to Charity: The Gifts That Keep on Giving, Business Law Today (November 2023). From the introduction:

This article examines what a charity should know about its exposure to liability as the transferee of a donation that turns out to be a fraudulent transfer by the donor. A charity can perform due diligence to manage most kinds of risk resulting from its receipt of a donated asset (e.g., hard-to-manage/risky assets, the risk of inadvertently participating in a tax shelter,[3] etc.), but a charity—even a large charity with sophisticated general counsel—faces a much more difficult challenge in attempting to mitigate the risk potentially posed by fraudulent transfer law. This article will also address how the law surrounding this intersection has evolved and how the courts have approached the issue of charity liability under fraudulent transfer law.

This article is especially timely given the recent federal bankruptcy court decision ordering a church to repay over $500,000 it had received, even though the church itself had acted in good faith and without knowledge that the funds originated from a fraudulent transfer (and even though the church had apparently already spent the contributed money).

Lloyd Mayer

Hoyt: The Legal Roadmap for IRA Distributions to CRTs and for Charitable Gift Annuities

Christopher Hoyt (UMKC) has posted The Legal Roadmap for IRA Distributions to CRTs and for Charitable Gift Annuities. Here is the abstract:

The “SECURE 2.0" legislation of 2022 permits individuals over the age of 70 ½ to make a once-in-a-lifetime tax-free transfer of up to $50,000 directly from an Individual Retirement Accounts (“IRA”) to a charity for a charitable gift annuity (“CGA”) or to a charitable remainder trust (“CRT”). The distribution will be excluded from the IRA owner’s taxable income as a qualified charitable distribution (“QCD”). For individuals age 73 or older, the QCD counts toward satisfying the required minimum IRA distribution for that year.

This article examines every legal requirement that must be met in order for the IRA distribution to be excluded from the IRA owner’s taxable income. Problems can arise in situations when an IRA holds non-deductible contributions, or if the IRA owner claimed an income tax deduction for a contribution to an IRA after age 70 ½. Charities should not use standard off-the-shelf gift annuity agreements, but should instead have agreements drafted specifically for such IRA gifts. A standard CGA or CRT agreement might contain provisions that could make the IRA distribution taxable, such as permitting an assignment of the income interest or including beneficiaries other than the IRA owner and the spouse.

Even when all of the documents are properly drafted, there can be administrative problems that will cause the transaction to blow up. Even though the IRA owner will not be claiming an itemized charitable income tax deduction, all of the requirements to claim such a charitable deduction must be met in order for the IRA distribution to qualify as a QCD. For example, the IRA owner must receive from the charity an accurate contemporaneous written acknowledgment before filing a federal income tax return. The article also examines other unresolved legal issues, such as whether or not the distributions that the IRA owner receives from the CRT or CGA will be exempt from the Section 1411 3.8% net-investment income tax.

Lloyd Mayer

Wahler, The Problem of Charitable Trust Enforcement

Morgan Wahler has published The Problem of Charitable Trust Enforcement: Addressing the Insufficiencies of the Attorney General System and Proposing New Law Reform, 48 ACTEC Law Journal 361 (2023) (subscription required).  The paper won the ACTEC Foundation's Mary Moers Wenig student writing competition last year. From the introduction:

This article focuses on [a] problem that arises in special ways with respect to charitable trusts - the mechanism for their oversight and enforcement. First, this article analyzes the current system of charitable trust enforcement, namely, who has standing to sue for enforcement. Next, this article explores the limitations innate to the current structure and stresses the urgency with which the current system must be modified through the use of two examples of breach of trust. The article concludes that to address the immense agency costs and overall inefficiencies of the current enforcement scheme, the settlors of charitable trusts should be permitted to name a trust enforcer; and if they fail to do so, courts should be obliged to appoint one.

Lloyd Mayer

Zelinsky: The Case for Taxing Nonprofit Hospitals

Following up on his 2022 article The Commerciality of Non-Profit Hospitals Requires Them to be Taxed: Bringing the Debate to a Conclusion, 42 Virginia Tax Review 401, Edward A. Zelinsky (Cardozo) has written The Case for Taxing Nonprofit Hospitals, Tax Notes, Oct. 24, 2023. From the Introduction:

Despite the label “nonprofit,” the contemporary nonprofit hospital is an essentially commercial institution, indistinguishable from its taxed, for-profit competitors. To enhance fairness and efficiency, similar institutions should be taxed similarly. Because the profitable operations of nonprofit hospitals today resemble the remunerative activities of for-profit hospitals, the federal income tax and the states’ income, sales, and property taxes should tax all of these hospitals in the same way.

Lloyd Mayer

Papers Published for the UCLA Symposium on the Restatement of the Law, Charitable Nonprofit Organizations

The UCLA Law Review Discourse has published the papers presented at last spring's UCLA Symposium on the Restatement of the Law, Charitable Nonprofit Organizations. Here are the paper titles and authors:

When Donor Meets Purpose by Atinuke O. Adediran

The Restatement of Charitable Nonprofits and the Changing Nature of the Modern Investment Committee by Garry W. Jenkins

Use of Restricted Assets During a Crisis: Is It Time to Raid the Endowment? by Jill R. Horwitz

Laws Governing Restrictions on Charitable Gifts: The Consequences of Codification by Nancy A. McLaughlin

Allocating State Authority Over Charitable Nonprofit Organizations by Lloyd Hitoshi Mayer

Lloyd Mayer

Bai, Letchuman & Hyman: Do Nonprofit Hospitals Deserve Their Tax Exemption?

Ge Bai (John Hopkins University), Sunjay Letchuman (Icahn School of Medicine at  Mount Sinai), and David A. Hyman (Georgetown University) have published Do Nonprofit Hospitals Deserve Their Tax Exemption? in The New England Journal of Medicine (subscription required). Here is the brief abstract:

Data suggest that many nonprofit hospitals don’t provide enough charity care or have a substantial enough Medicaid shortfall (relative to for-profit hospitals) to justify their favorable tax treatment.

Lloyd Mayer

McLaughlin: Laws Governing Restrictions on Charitable Gifts: The Consequences of Codification

Nancy A. McLaughlin (University of Utah) has published Laws Governing Restrictions on Charitable Gifts: The Consequences of Codification in UCLA Law Review Discourse. Here is the abstract: 

Over the last two decades we have seen marked changes in the laws governing donor-imposed restrictions on charitable gifts. These changes have occurred primarily as a result of the adoption in many states of the Uniform Trust Code (the UTC) and the Uniform Prudent Management of Institutional Funds Act (UPMIFA). This Essay explains that codification in the UTC and UPMIFA of liberalized versions of cy pres and deviation, as well as other related changes to the common law, have had unintended negative consequences. Those negative consequences include a lack of coherence in the law, an elevation of form over substance when it comes to the laws applicable to a particular gift, uncertainties regarding how the statutory provisions operate, inequities between sophisticated or well-represented donors and donees and those who are less sophisticated and without the resources to hire experienced advisors, and confusion in the courts as they grapple with this new, much more complex landscape of laws. This Essay outlines these problems and begins to consider what might be done to address them.

Lloyd Mayer

 

Mitchell: Three Models of US State-Level Charity Regulation

George E. Mitchell (Baruch College) has published Three Models of US State-Level Charity Regulation in the Nonprofit Policy Forum. Here is the abstract:

The existence of federal oversight of charitable organizations in the United States implies a degree of uniformity to US charity regulation. However, charity regulation is far from uniform across the country. States differ significantly in their adoption or non-adoption of various state-level regulatory requirements, creating not one but many different regulatory environments for charities. The complexity and diversity of these regulations has made it difficult for sector stakeholders, such as researchers, regulators, practitioners, information intermediaries, and donors, to understand the nature and significance of state-level charity regulation from a comparative perspective. To address this problem, this article employs latent class analysis to identify three distinct models of state-level charity regulation: broad regulation, limited regulation, and asset oversight. Subsequent analysis identifies relationships between a state’s economic, social, and political characteristics and its model of charity regulation, suggesting new avenues of research for understanding regulatory model emergence. Many additional practical applications of the typology are also discussed.

Lloyd Mayer

Ryan: Cy Près and Religious Discrimination

C.J. Ryan (University of Louisville) has posted Nearer to Thee: Cy Près and Religious Discrimination. Here is the abstract:

In the law of charitable trusts, courts wield exceptional power with respect to two equitable remedies—cy près and the closely related doctrine of deviation—they can confer on trusts that have purposes or terms rendered ineffectual. Either doctrine allows the court to prolong the trust’s life, perhaps forever. Historically, the invocation of these remedies was anathema to American courts. But increasingly, they have contemplated the possibility of extending the life of charitable trusts through application of these doctrines. In many ways, the evolution of these doctrines is owing to the jurisprudence involving trusts created for the benefit of a religious congregation or charity. Yet, this connection and the implications of judicial decisions regarding the right to these remedies has not garnered academic attention until now.

In this study, I analyze the extent to which courts have applied these equitable remedies to religious purpose charitable trusts via an econometric analysis of a universe of cases with a published opinion from an American court from the nation’s founding through 2019. This study provides a novel analysis of these equitable remedies and the history of religious purpose charitable trusts along a considerable timeline in American history. First, it explores how the equitable remedies of cy près and deviation were shaped by and shaped the caselaw around religious purpose charitable trusts, elucidating the simultaneity of the recognition of each as valid remedy and trust. Second, it examines the possible bias of the courts in awarding these remedies to certain religious groups but not others, ultimately finding that trusts created for the benefit of Catholic churches and charities were deemed less worthy of these remedies by the courts, all else equal. These findings have implications not only for understanding the application of these equitable remedies more deeply but also for uncovering t

Lloyd Mayer

Sholk: A Guide to Election Year Activities of Section 501(c)(3) and 501(c)(4) Organizations

Steven H. Sholk (Gibbons law firm) has posted an updated version of his comprehensive Guide to Election Year Activities of Section 501(c)(3) and 501(c)(4) Organizations. Here are the headings from the table of contents:

STATUTORY PROVISIONS ON CONTRIBUTIONS, EXPENDITURES, AND ELECTIONEERING 

STATUTORY AND REGULATORY PROVISIONS ON CONTRIBUTIONS TO AND FUNDRAISING FOR SECTION 501(c)(3) ORGANIZATIONS

REGULATORY PROVISIONS ON CONTRIBUTIONS, EXPENDITURES, AND ELECTIONEERING

VOTER REGISTRATION AND GET-OUT-THE-VOTE DRIVES

VOTER GUIDES

CANDIDATE APPEARANCES AND ADVERTISEMENTS

CANDIDATE DEBATES

CANDIDATE USE OF FACILITIES AND OTHER ASSETS

WEBSITE ACTIVITIES

CAMPAIGN ACTIVITIES OF SECTION 501(c)(3) ORGANIZATION’S DIRECTORS, OFFICERS, AND EMPLOYEES

CONSEQUENCES OF VIOLATIONS 

Lloyd Mayer

Tyler, Jimenez & Bright: Tax-Exempt Approaches to Decision-Making Informed by Race

John E. Tyler (Ewing Marion Kauffman Foundation), Martha Jimenez (no affiliation provided), and Lauren Bright (no affiliation provided) have posted a short paper titled Tax-Exempt Approaches to Decision-Making Informed by Race: Terminology, Definitions, Risk and Focus on Racial Equity and Justice. Here is the abstract:

This paper focuses on presenting a spectrum of relevant approaches for charities, foundations, and others seeking to become more intentional about incorporating race into their programmatic (as opposed to employment, investment, or other operational) decision-making. Having a common nomenclature and understanding of how to characterize the types of racial equity and justice approaches and outcomes can facilitate those discussions and decisions internally and with others. This paper does not seek to provide answers; but rather; presents a suggested framework, including approaches, terminology, definitions, and practices to help advance those discussions. The approaches are as follows: race-neutral, race-aware, race-conscious, and race-based.

In addition to discussing definitions and practices within each approach, this paper also presents considerations about their risk of potential exposure (e.g., § 1981 and/or Title VI), potential mitigation strategies, and degrees of perceived intentionality about pursuing racial equity and justice. Those considerations are highly imperfect, are not to any scale, and are for illustrative purposes only. Moreover, they do not consider the many other factors that affect exposure, nor do they purport to be translatable for analyzing reputational risks/benefits, which also are unique to an organization and its circumstances.

Lloyd Mayer

Treasury Department EO Priority Guidance Plan

Last Friday, the Treasury Department issued its annual “priority guidance plan.” In the Exempt Organizations category, it listed 10 items, 9 of which are the same as they were last year. (Thanks Paul Streckfus for the summary).  Some of the items have been on the list for many years, including the following, which is celebrating its ten-year anniversary on the list: “5. Guidance under §4941 regarding private foundation’s investment in a partnership in which disqualified persons are also partners.”

For the uninitiated, section 4941 prohibits self-dealing between private foundations and certain disqualified persons. The restrictions on self-dealing are much stricter than the restrictions that apply to transactions between public charities and their disqualified persons or than the restrictions that would be imposed by state fiduciary duty standards.  Therefore, they have the potential to significantly impact investment strategies by private foundations when those strategies include entities that also have disqualified persons as investors.

The ten-year anniversary of this item on the Treasury’s priority guidance plan is an opportunity to revisit a fantastic six-year-old article by Elaine Waterhouse Wilson, a professor at West Virginia University College of Law: Is Consistency the Hobgoblin of Little Minds? Co-Investment Under Code Section 4941. The article provides detailed background about private foundation investing practices and their interaction with multiple legal regimes. It then describes several private letter rulings that the IRS issued in the early 2000s that, “allow such an arrangement, on the notion that when a private foundation invests in a partnership, it is not entering into a transaction of any kind with either the partnership itself or the other partners.”  Because there is no transaction, “there can be no act of self-dealing.” Wilson argues that this theory is inconsistent with other code provisions and state-law partnership law, and so creates unnecessary problems.  Instead, she urges the Treasury to “provide a limited regulatory safe harbor allowing such transactions” but make sure that the guidance communicates that “the subsequent use of the asset in a manner that is not consistent with proportionate co-ownership may be an act of self-dealing[.]” Professor Wilson’s treatment of the subject is required reading for anyone interested in the issue, and well illustrates how difficult it is to craft good regulatory guidance.

Benjamin Leff

New Paper: Charitable Objectives or Donor Interests? What Sponsor Language Reveals about Donor-Advised Fund Priorities and Resource Flows

Helen Flannery and Brian Mittendorf have a new paper entitled Charitable Objectives or Donor Interests? What Sponsor Language Reveals About Donor-Advised Fund Priorities and Resource Flows.

The abstract reads as follows: "Charities in the U.S. are categorized into two distinct groups – private foundations and public charities. Due to the inherent concentration of funding and control, private foundations face more restrictions and offer less generous tax benefits than public charities. However, recent years have seen a dramatic rise in donor-advised funds (DAFs), giving vehicles which represent a gray area in this categorization. Though housed in public charity sponsors, DAFs have often been characterized as de facto private foundations due to the deference many sponsors give to donors’ wishes. The consequence has been frequent calls for reform to compel grant disbursements and limit donor control. To examine DAF behavior as it relates to these concerns, we develop a measure of sponsor priorities by examining the language used in sponsor websites. In addition to presenting a new method of classifying sponsors, we also show how this emphasis measure varies across sponsor types, with community foundations showing greater mission emphasis and national sponsors showing greater donor emphasis. We further demonstrate how variation in the emphasis measure is predictive of resource flows. Most notably, national sponsors with a measure indicating greater donor emphasis attract more noncash donations, accumulate more assets, and have lower payout rates. The results provide a means of better understanding variation in DAF sponsor behaviors and may also prove useful for policymakers seeking to ensure that all sponsors prioritize charitable objectives over donor interests."

Philip Hackney

Aprill: Section 501(c)(3) Charitable Purpose Meets Administrative Law

Ellen P. Aprill (Loyola L.A.) has posted Section 501(c)(3) Charitable Purpose Meets Administrative Law. Here is the abstract:

In the past several years taxpayers have won a number of challenges to tax guidance based on violations of administrative law. Federal courts are blithely invalidating IRS and Treasury guidance, ranging from regulations to notices, because of failure to follow various administrative law doctrines. These administrative law challenges have been substantive, procedural, or both. Courts engage substantive challenges under the Chevron doctrine by determining whether guidance is inconsistent with or an unreasonable interpretation of the statutory language. Procedural challenges involve failure to satisfy requirements of the Administrative Procedures Act (APA), in particular the need for and adequacy of notice-and-comment rulemaking. The guidance nullified in recent cases includes some finalized decades ago.

To demonstrate the potential enormous consequences of these decisions, this article examines how the regulations defining “charitable” under § 501(c)(3) and the related hodge-podge of sub-regulatory guidance, especially revenue rulings, would fare under such application of current administrative law doctrine. The statute and guidance under “charitable” are very old indeed. The exempt purposes listed in § 501(c)(3) date back almost 150 years. The currently applicable regulations were promulgated in 1959. Key revenue rulings date to the 1970’s.

This examination represents a thought experiment. No court has yet invalidated the regulations or revenue rulings defining charitable purpose under § 501(c)(3) based on violations of administrative law. Such a challenge, however, could easily arise. An organization challenging denial of exemption in a declaratory judgment action under § 7428 could raise administrative law issues like those in the recent cases discussed in this piece. Challenges based on the APA have already occurred in connection with charitable deductions, a tax provision closely related to the definition of charitable purpose.

The broad application of the regulations defining charitable purpose and related revenue rulings as well as their age makes them a particularly good vehicle for considering the implications of recent tax cases invalidating guidance based on administrative law doctrines. Moreover, most tax lawyers have at least a passing familiarity with § 501(c)(3), making this approach to recent decisions accessible.

This thought experiment serves two different purposes. First, application of administrative law doctrine to this body of tax laws exposes flaws regarding guidance not only as to charitable purpose but also to tax guidance more generally. I hope that this aspect of the article encourages the IRS to explore ways to increase public participation in the guidance process. Second, it demonstrates the enormous potential harm to the tax system from judicial invalidation of old tax guidance based on flaws in the administrative procedure. My hope in this regard is that exposing the possible consequences of this new trend will move Congress to act to limit it, perhaps by clarifying the extent to which the APA requirements apply to tax guidance. Further, I urge Congress to codify the approach of a recent district court decision, which applied a six-year statute of limitations, accruing from the date tax guidance is issued, to challenges for noncompliance with the APA. Longstanding guidance is a terrible thing to waste.

Lloyd Mayer

Dean, Charity and Abuse: Fundraising and Symbolic Power in the Case of Jimmy Savile

Yesterday I wrote about some of the benefits that tax-exempt organizations can uniquely provide. But there are downsides, too. One is that the warm glow of charity can disguise or cover bad actions. As an American, I'm only vaguely familiar with Jimmy Savile (and mostly only because of the revelations that came out after his death. But Jon Dean's Charity and Abuse: Fundraising and Symbolic Power in the Case of Jimmy Savile demonstrates that Jimmy Savile's predation on underage girls was enabled, in part, by this charitable fundraising prowess. You can read the abstract here:

In life, Jimmy Savile was revered as Britain’s greatest charity fundraiser. In death, he is remembered as Britain’s most notorious pedophile. Raising over £40 million for good causes throughout his media career, a year after his death several investigations revealed a history of abuse of hundreds of children, mostly young girls, across the institutions he worked or volunteered at. Using the framework of the symbolic power of charity, this article documents how these crimes were either missed or covered up. Savile used his fundraising prowess and the “good glow” of his reputation to enable his abuse and shield him from discovery. Institutions prioritized their reputation or fundraising income over bad publicity and proper safeguarding. Drawing on a growing critical literature, this is the first article to explore the role of Savile’s charity in his crimes and highlights the increased concern over charity’s role as a tool of reputation laundering for elites.

Samuel D. Brunson

Jung: Does the Lack of Diversity in Nonprofit Museums Make Them Undeserving of Tax-Exempt Status?

Yuha Jung (University of Kentucky, Department of Arts Administration) has posted Does the Lack of Diversity in Nonprofit Museums Make Them Undeserving of Tax-Exempt Status?: Perspectives from Critical Race, Commons, and Systems Theories. Here is the abstract:

Currently, visitors to nonprofit art museums are not diverse; rather they represent a small portion of the community — thus the museums are providing benefits to a narrow group. Continuing the practices that result in homogenous visitorship may not be aligned with the congressional intent of 501(c)(3) in terms of failing to provide public benefits and uphold public policy by “denying” access to museums based on socioeconomic and racial backgrounds as well as being seen as providing “private benefits” to a select few. By using legal (critical race theory), economic (theory of the commons), and organizational theories (open systems theory), this article presents a legal argument for greater diversity and inclusivity in museum practices, such as a more concrete and compulsory rationale for museums to strive toward more diversity and inclusivity in their practice in recruiting board members and staff and in serving diverse communities. Critical race theory and the theory of the commons are used to establish the issue of museums’ exclusive practice and the need to provide more public access. A legal analysis of two nonprofit tax law provisions (no substantial private benefit provision and public benefit doctrine) provides compulsory rationale for requiring museums to change and be more inclusive. Open systems theory provides a framework for transformation and a rationale for stronger and enforceable legal standards for nonprofit art museums to merit tax benefits. In comparing 501(c)(3) museum practices to nonprofit hospitals, the paper further proposes community benefit standards for museums as an affirmative action plan which can help move museums toward more inclusive and equitable practices thereby justifying tax benefits that come with being 501(c)(3) nonprofits in the United States.

Lloyd Mayer

Zelinsky Argues Private Foundation Rules Should Apply to DAFs

In a recent Tax Notes piece, Professor Edward Zelinsky of Cardozo Law argues Congress should extend private foundation rules to the operation of donor advised funds.

From the piece:

"In his recent tax proposal to Congress,¹ President Biden urged two changes to the Internal Revenue Code provisions governing private foundations’ required annual distributions. First, the president suggested that private foundations’ salary payments not satisfy the code’s annual payout requirement if they are made to “disqualified persons” — insiders positioned to exercise direct or indirect influence over the foundation’s affairs.² Second, Biden proposed that distributions by a private foundation to a donor-advised fund also not satisfy the foundation’s yearly distribution requirement unless the DAF in turn contributes this amount to charity by the end of the following year.³

These are modest and sensible proposals that Congress should adopt. But they do not go far enough. DAFs should be subject to all the same provisions of the Internal Revenue Code as apply to private foundations. DAFs, effectively controlled by the donors who establish them, are substantively indistinguishable from private foundations, typically controlled by the founders and their families. Congress should amend the code to apply to DAFs all provisions pertaining to private foundations, in particular, the requirements regarding minimum annual distributions⁴ and yearly tax payments to the federal treasury.^5"

^{Philip Hackney}