Nonprofit Law Prof Blog

Plerhoples: Social Enterprises and Benefit Corporations in the United States

Alicia E. Plerhoples (Georgetown) has written Social Enterprises and Benefit Corporations in the United States, which has been published in The International Handbook of Social Enterprise Law (Springer 2023). Here is the abstract:

The United States is the birthplace of benefit corporations precisely because of American society’s over-reliance on the private sector to solve societal problems. U.S. federal and state regulation continuously fails to provide robust social safety nets or prevent ecological disasters. American society looks to companies to do such work. U.S. social enterprise entities attempt to upend the U.S. legal framework which binds fiduciaries to focus on shareholder value. These entities are permitted, and sometimes required, to consider environmental, social, and governance (“ESG”) impacts of their operations, essentially internalizing ESG costs that would otherwise be paid by American communities and the environment. This chapter traces social enterprise development under U.S. law, starting with a brief discussion of corporate law as a creature of state law. It then provides an overview of the two major types of social enterprise entities in the United States: (1) the Delaware Public Benefit Corporation, and (2) the California Social Purpose Corporation. The chapter briefly discusses other types of U.S. social enterprise entities, including hybrid ventures, worker cooperatives, and the low-profit liability company. The chapter concludes with a discussion of responses to companies’ ESG efforts by legal scholars, asset managers, and the U.S. Securities and Exchange Commission. These responses and the uptake of publicly traded public benefit corporations indicate a seismic shift forward in the use of ESG frameworks in the United States.

Lloyd Mayer

Sidel: The Future of Civil Society Research in China, Hong Kong and Vietnam

Mark Sidel (Wisconsin) has posted The Future of Civil Society Research in China, Hong Kong and Vietnam, which has been published in A Research Agenda for Civil Society (Edward Elgar 2022). Here is the abstract:

I have worked on civil society research, particularly on nonprofit–state relations and philanthropic issues in China and Vietnam for several decades. More recently I have been closely following the situation in Hong Kong after China took draconian steps to control Hong Kong in mid-2020,especially through the enactment and enforcement of the National Security Law applicable to Hong Kong. I have long followed the work of civil society researchers in China, Hong Kong and Vietnam, and collaborated with some of those impressive scholars. And I have long been concerned about the future of research in this important field in those jurisdictions. Let me discuss each of these areas in turn, with a focus on:

• Key ideas, main debates, significant relevant publications and unresolved issues.

• Observations about changes in civil society in over the past years with expectations for the period to come.

• Suggestions about the content of a future civil society research agenda.

Lloyd Mayer

Fleischer: The morality of charitable bequests

Miranda Perry Fleischer (San Diego) has a chapter titled The morality of charitable bequests in a the new book Inheritance and the Right to Bequeath: Legal and Philosophical Perspectives (Routledge 2022). Here is the abstract for the chapter:

Although discussions of inheritance law and policy focus on private bequests to family members, decedents also bequeath large sums to charity – roughly $42 billion in 2020 in the United States alone. The place of charitable bequests has largely been overlooked in the philosophical literature, which tends to approach inheritance as the transfer of wealth between generations of the same family. Most theorists simply assume, with little discussion, that charitable bequests raise different policy concerns and should be given favourable treatment. This chapter explores the interaction of charitable bequest-giving and two common concerns of inheritance law and policy, namely equality of opportunity and the hereditary transmission of political and economic power over others. It argues that charitable bequests are not equal when it comes to alleviating such concerns, and in fact, some charitable bequests exacerbate them. To that end, priority should be given to charitable bequests that further the head start of the least-advantaged and that do not perpetuate family control over assets.

Lloyd Mayer

Plerhoples: Purpose Driven Companies in the United States

Alicia E. Plerhoples (Georgetown) has posted Purpose Driven Companies in the United States, to be published in the International Handbook of Social Enterprise Law: Benefit Corporations and Other Purpose Driven Companies (Henry Peters, et al., eds., forthcoming 2022),. Here is the abstract:

The United States is the birthplace of benefit corporations precisely because of American society’s over-reliance on the private sector to solve societal problems. U.S. federal and state regulation continuously fails to provide robust social safety nets or prevent ecological disasters. American society looks to companies to do such work. U.S. social enterprise entities attempt to upend the U.S. legal framework which binds fiduciaries to focus on shareholder value. These entities are permitted, and sometimes required, to take into account environmental, social, and governance (“ESG”) impacts of their operations, essentially internalizing ESG costs that would otherwise be paid by American communities and the environment. This chapter traces social enterprise development under U.S. law, starting with a brief discussion of corporate law as a creature of state law. It then provides an overview of the two major types of social enterprise entities in the United States: (1) the Delaware Public Benefit Corporation, and (2) the California Special Purpose Corporation. The chapter briefly discusses other types of U.S. social enterprise entities, including hybrid ventures, worker cooperatives, and the low-profit liability company. The chapter concludes with a discussion of responses to companies’ ESG efforts by legal scholars, asset managers, and the U.S. Securities and Exchange Commission. These responses and the uptake of publicly traded public benefit corporations indicate a seismic shift forward in the use of ESG frameworks in the United States.

Lloyd Mayer

New Edition of the Model Nonprofit Corporation Act Now Available

The American Bar Association has published the Model Nonprofit Corporation Act, 4th Edition. Only time will tell if it is more successful than the 3d Edition, that was only adopted by one jurisdiction (the District of Columbia). Here is a description:

The 4th Edition of Model Nonprofit Corporation Act is a model statute governing nonprofit corporations designed for adoption by state legislatures. The 4th Edition of the MNCA was adopted in 2021 and is a substantial revision of the Act while preserving important aspects of the 3d Edition. The Act follows the Model Business Corporation Act provisions to the extent possible while highlighting and respecting the characteristics that distinguish nonprofit from profit corporations.

The original Model Nonprofit Corporation Act was approved by the ABA Business Law Section Corporate Laws Committee in 1952 and has evolved with revisions and updates by the Nonprofit Organizations Committee. The MNCA is a model set of statutes governing nonprofit corporations proposed for adoption by state legislatures. This updated Fourth Edition contains many changes that follow the updated provisions and revised official comments in the 2016 revision of the Model Business Corporation Act, along with a variety of other changes. New provisions in the Fourth Edition include the ability to renounce in advance corporation opportunities, procedures to ratify defective corporate actions and records, and the validity of forum selection bylaws. While it includes important new provisions, the Fourth Edition also stands in direct continuity with prior versions and continues the substantive approach of the Third Edition.

A general nonprofit corporation statute must be designed to provide rules for all types of nonprofit corporations from large hospital systems to small human services nonprofits to country clubs and to the other thousands of nonprofit corporations that exist in each state. Besides following the MBCA as much as possible, the MNCA provides as much flexibility as possible to nonprofit corporations as to how they are structured and governed. The Fourth Edition continues to provide great flexibility for nonprofit corporations to organize and operate in what they believe to be the most efficient and effective manner.

Lloyd Mayer

Annual Status of Civil Society Published

Lucy Bernholz published her annual industry assessment of civil society entitled Philanthropy and Digital Civil Society: Blueprint 2022. You can download it here.

Think readers will be interested in the report. It is described as follows: "Philanthropy and Digital Civil Society: Blueprint is an annual industry forecast about the ways we use private resources for public benefit in the digital age. Each year, the Blueprint provides an overview of the current landscape, points to big ideas that matter, and directs your attention to horizons where you can expect some important breakthroughs in the coming year."

‘This year’s Blueprint asks us to consider that many perceived “impossibilities” – think of the major transformations we need to solve our biggest challenges – are indeed possible, and how digital civil society and independent philanthropy can help make them a reality,’ said Bernholz, Senior Research Scholar at the Stanford Center on Philanthropy and Civil Society (Stanford PACS) and Director of its Digital Civil Society Lab.

‘We are in a threshold moment, and civil society, rooted in collective purpose and shared values, has clear opportunities to lead in creating new and better pathways forward.’

Philip Hackney

Giving Remains Steady As Pandemic Continues, But Some Giving Patterns Change

Several recent studies of giving in the United States reveal various trends as the pandemic and other crises continue.

The Fundraising Effectiveness Project released this week its 2021 Second Quarter Fundraising Report. According to the report's announcement, the key findings include: 

• While giving in 2021 has not seen the explosive growth of 2020, the pace of giving and number of donors has remained roughly the same or even a little higher. The estimated number of donors increased by 0.7% in the first half of 2021 compared to the same period in 2020, while the total amount of money given has risen by a projected 1.7%.
•  
• Fundraising has remained strong in the first half of the year due to the number of newly retained donors—that is, the number of new donors in 2020 who have continued to give in 2021. The number of newly retained donors increased 22.4% over the first half of 2021. 
•  
• Total giving and the number of donors grew by record rates in the first quarter of 2021 (10% and 6%, respectively), but the growth was much more nominal in the second quarter. The drop in growth in the second quarter might be a developing trend that leads to flat or decreasing in the third quarter, or the result of abnormally strong first quarter growth.

The IUPUI Lilly Family School of Philanthropy also released this month Understanding Philanthropy in Times of Crisis: The Role of Giving Back During COVID-19. Its key findings were:

• Individual Giving: 1. Americans have maintained their commitment to charitable giving throughout the pandemic, with some notable exceptions. 2. Donors who gave to COVID-related causes often indicated that other people can be trusted and were more motivated to strive for the wellbeing of others and society. 3. End-of-year giving made up a larger portion of giving in 2020 than in the previous two years. 4. Nonprofit subsectors directly related to responding to the pandemic, such as human services, health, and public-society benefit, saw significant increases in donations. 5. The characteristics of donors to COVID-related causes appear similar to general patterns in giving to charitable causes more broadly. 6. Innovation and digital adaptation were vital to meeting new demands during COVID-19.
•  
• Corporate Giving: 1. Corporations responded to the increased health demands imposed by COVID-19 with increased giving and multi-year pledges. 2. The commitment of corporate philanthropy to health causes is distinct from other types of donors. 3. Finance and insurance companies dominated U.S. corporate giving to COVID-19 relief in 2020. 4. Corporations (that participated in interviews with the school) adapted their workplace giving programs in response to COVID-19, with a heavy reliance on technology.

Earlier this fall, Bank of American and the IUPUI Lilly Family School of Philanthropy released The 2021 Bank of America Study of Philanthropy: Charitable Giving by Affluent Households. According to the overview, it found "[t]he vast majority (88.1 percent) of affluent households gave to charity in 2020, and nearly a third (30.4 percent) of affluent individuals volunteered their time (down significantly from 47.8 percent in 2017), despite the COVID-19 global pandemic. On average, affluent donor households gave $43,195 to charity in 2020. By comparison, donor households in the general population gave $2,581." It also found that issues drove giving roughly as much as organizations, in a shift from previous studies indicating that organizations were a strong influence, and that support for social and racial justice grew in significance. 

Lloyd Mayer

Huber, Pittavino & Peter, Tax Incentives for Charitable Giving: Evidence from the Canton of Geneva

Giedre Lideikyte Huber, Marta Pittavino, and Henry Peter (all from the University of Geneva) have posted Tax Incentives for Charitable Giving: Evidence from the Canton of Geneva on SSRN (to be published in the Routledge Handbook of Taxation and Philanthropy). Here is the abstract:

This contribution presents the legal framework of income tax incentives for charitable giving in Switzerland and describes the reform putting this system in place in 2006. Using a unique data set shared by the Tax Administration of the Canton of Geneva for this purpose, we provide descriptive statistics about taxpayers’ charitable giving behaviour in Geneva from 2001 to 2011. In this period, the number of taxpayers deducting charitable contributions significantly increased. In contrast, the size of individual annual deductions (both mean and median) decreases. The data show that the amount of tax deductions for charitable giving sharply increases relative to income class, and the median charitable deduction by taxpayer rises exponentially with income (i.e. years 2001 and 2011). Currently, no clear effects of the 2006 tax reform are visible; however, more in-depth studies are needed in this respect.

Lloyd Mayer

Murray, Charity Law and Accumulation: Maintaining an Intergenerational Balance

Ian Murray (University of Western Australia) recently published Charity Law and Accumulation: Maintaining an Intergenerational Balance (Cambridge: Cambridge University Press, 2021). Here's a description of the book: 

Much has been written in charity law on the type of benefits that charities can provide (charitable purposes) and who such benefits must be directed towards (the public benefit question). Much less has been written about when those benefits must be provided. However, accumulation of assets by charities raises profound ethical, economic and social considerations, that are highlighted by the present retreat of the welfare state and the on-going impact of the Global Financial Crisis and COVID-19. In particular, how should the public benefits produced by charities and affected by accumulation be shared between different generations? It is, after all, inherent in the notion of accumulation, that the delivery of some benefits will be deferred. Which generation(s) should decide that allocation of benefits? Might the decision-making discretion afforded to charity controllers over accumulation and the allocation of benefits increase agency costs and so reduce the level of public benefit achieved?

This book analyses these issues through a normative, doctrinal and comparative analysis of the legal constraints upon accumulation by charities. It reveals that the legal restraints contain significant gaps in relation to the intergenerational distribution of benefits and to the balance of decision-making between generations. In particular, the book asserts that, to fill those gaps, there is room for law reform to better identify and incorporate principles of intergenerational justice into the regulation of charities. The book makes this theory and its practical application accessible to readers without specialised training in political philosophy and economics. The book also explains to those steeped in political philosophy and economics (but not law) why it is there are issues and how they can start thinking about law reform.

Samuel D. Brunson

OECD report on Taxation and Philanthropy

The OECD recently  issued a report on Taxation and Philanthropy that will likely be of interest to our readers.

The summary provides: "This report provides a detailed review of the tax treatment of philanthropic entities and philanthropic giving in 40 OECD member and participating countries. The report first examines the various arguments for and against the provision of preferential tax treatment for philanthropy. It then reviews the tax treatment of philanthropic entities and giving in the 40 participating countries, in both a domestic and cross-border context. Drawing on this analysis, the report then highlights a range of potential tax policy options for countries to consider."

Philip Hackney

Frye: The Illusory "Public Trust"' in Art

Brian L. Frye (Kentucky) has posted The Illusory "Public Trust" in Art, which has been published in Deaccessioning in a Post-Pandemic Word. Here is the abstract:

The "deaccessioning police" argue that it is "unethical" for art museums to "deaccession" or "sell" works of art from their collections for any purpose other than buying different works of art, because museums do not really own the art in their collections, but only hold it subject to the "public trust doctrine." This essay observes that the public trust doctrine doesn't apply to art, and that the arguments made by the deaccessioning police are absurd, on their own terms.

Lloyd Mayer

Russell: The Contractual Revolution in Charity Governance

Jacob Hale Russell (Rutgers) has posted For Whom Are Non-Profit Managers Trustees? The Contractual Revolution in Charity Governance, which will be published in Fiduciary Obligations in Business (forthcoming). Here is the abstract:

This chapter chronicles an unnoticed aspect of the intellectual history of the “contractarian” paradigm, the descriptive claim that firms are best characterized as nexus of contracts. Although the paradigm’s rise in the 1980s in the corporate world is well known, little has been said about its success in rewriting both theory and doctrine in charitable and not-for-profit law. The contract paradigm has reshaped the questions that not-for-profit scholarship attempts to answers, and it is tightly linked to developments in not-for-profit doctrine and practice. Key examples include the growth of donor standing — the notion that not-for-profits have a fiduciary duty to their donors, and that donors may bring suit for breaches — and the growing obsession with “donor intent” throughout the not-for-profit sphere. I contrast contractarianism with an institutionalist “public trust” conception of charities, which was the prevailing intellectual paradigm for most of the 20th century.

Lloyd Mayer

Debates in Charity Law (Picton & Sigafoos, editors)

Hart Publishing has released Debates in Charity Law, edited by John Picton and Jennifer Sigafoos (both Liverpool). Here is the description:

Charitable organisations occupy a central place in society across much of the world, accounting for billions of pounds in revenue. As society changes, so does the law which regulates nonprofit organisations. From independent schools to foodbanks, they occupy a broad policy space. Not immune to scandals, sometimes nonprofits are in the news for all the wrong reasons and so, when they are in the public eye, regulators must respond to high profile cases.

In this book, a team of internationally recognised charity law experts offers a modern take on a fast-changing policy field. Through the concept of policy debates it moves the field forward, providing an important reference point for developing scholarship in charity law and policy. Each chapter explores a policy debate, setting out the fault-lines in play, and often offering proposals for reform.

Two important themes are explored in this edited collection. First, there is a policy tension in charity law between its largely conservative history and the need to keep up-to-date with social change. This pressure is felt acutely along key fault-lines, such as the extent to which a body of law which developed before the advent of legislated human rights is able to adapt to a rights-based world, and the extent to which independent schools – historically so closely linked with charity – might deserve their generous tax-breaks. The second theme explores the law from the perspective of a good-faith regulator, concerned to maximise the usefulness of charities. From the need to reform old organisations, to the need to ensure that charities enjoy the right amount of regulatory freedom in a world of payment-by-result contracts, the book critically charts the policy justifications for regulatory intervention, as well as the costs that such intervention might bring.

Debates in Charity Law will be of interest to both academic researchers and students of the non-profit sector, looking to understand the links between law, social change and regulation. It will also help and guide nonprofit employees and volunteers, showing how their sector is shaped and moulded by the law.

And here is the Table of Contents:

1. Fault Lines in Charity Law
John Picton and Jennifer Sigafoos
2. Independence and Accountability in the Charity Sector
Matthew Harding
3. Debating the Extent of Party/State Control Over Overseas Nonprofit Organisations: Charity Law Debates in China
Mark Sidel
4. Regulating Egoism in Perpetuity
John Picton
5. Deploying Communitarianism Bankruptcy Theory to Rescue Insolvent Charities and Maintain Charitable Purposes
John Tribe
6. When Should Charities be Allowed to Discriminate? The Case of Single-Sex Services and Transgender People
Jennifer Sigafoos
7. Regulating Charitable Activities through the Requirement for Charitable Purposes: Square Peg Meets Round Hole
Adam Parachin
8. Redefining the Regulatory Space? Th e First Forays of the Irish Charities Regulatory Authority
Oonagh B Breen
9. Independent Schools in Scotland: Should they be Charities?
Patrick Ford
10. Licking their Own Lollipops: What do Charities and the Public Think about the Regulation of Charitable Activities?
Eddy Hogg
11. Commissioning of Services by Charities in the Third Decade of the Contract Culture: Lessons Learned (or Not Yet)
Debra Morris
12. Regulating the Digital (Currency) Revolution: Unravelling the Technological Challenge Faced by Charities
Matthew Robert Shillito
13. Social Housing – Charities and Vulnerable Groups
Warren Barr
14. Charity Law and Policy: Looking Forward
Jennifer Sigafoos and John Picton

Lloyd Mayer

The Chronicle's Nonprofit Reading List

 I found this helpful list of recommended nonprofit readings on the Chronicle of Philanthropy website:

https://www.philanthropy.com/article/Catch-Up-on-Books-Recommended/247018?cid=cpfd_home

I have read a few of them, have a couple of others on my Nook awaiting my attention (with summer reading time coming to an end and the new semester ... they may be waiting a while), and others that I'm about to add to the stack.   I read Winner Take All - I think the central point was important, but found the author's approach to be so judgmental as to overwhelm his argument.  I just started Just Giving, and am looking forward to finishing that as part of an article I'm writing (slowly...) on endowments.   I think the next up will be Uncharitable.

I'd love to hear any thoughts others might have on these books, and if there are any that you all might add to the list.

 

EWW

Update Available for Fishman, Schwarz, and Mayer Nonprofit Organizations: Cases and Materials (5th ed.)

For those of you who use the Nonprofit Organizations casebook I co-author with James J. Fishman (Pace) and Stephen Schwarz (Hastings, emeritus), a new Student Update Memorandum is available for download (at no charge to you or your students) and and a new Teacher's Manual Update Memorandum is also available (also at no charge, but requires a West Academic Account). Both are current through July 15, 2019, and so include discussions of all relevant provisions of the 2017 Tax Cuts and Jobs Act (TCJA) as well as guidance relating to those provisions. The Student Update Memorandum also includes the text of new provisions added by TCJA and the Bipartisan Budget Act of 2018, as well as the text of other changed or added provisions that are included in the Nonprofit Organizations Statutes, Regulations and Forms book that we also author.

As always, any feedback - positive or negative - regarding the casebook and the updates is greatly appreciated. 

Lloyd Mayer

Ellen Aprill's Review of Hamburger's "Liberal Suppression: Section 501(c)(3) and the Taxation of Speech"

Ellen Aprill (Loyola-LA) recently posted a review of Professor Philip Hamburger's (Columbia) "Liberal Suppression: Section 501(c)(3) and the Taxation of Speech" at HistPhil.org.     HistPhil, which is "a web publication on the history of the philanthropic and nonprofit sectors, with a particular emphasis on how history can shed light on contemporary philanthropic issues and practice."   Prof. Hamburger's book argues that, as a constitutional law matter,

    

...  theopolitical fears about the political speech of churches and related organizations underlay the adoption, in 1934 and 1954, of section 501(c)(3)’s speech limits. He thereby shows that the speech restrictions have been part of a broad majority assault on minority rights and that they are grossly unconstitutional.

 

Prof. Aprill bring a tax lens to this issue, highlighting the history of the Johnson Amendment.   The review introduces readers who might not be familiar with the public subsidy theory of exemption to a different approach to the Constitutionality issues and highlights much of the tax-focused scholarship in the area.

 

EWW

Research Handbook on Not-For-Profit Law

Edward Elgar Publishing has released the Research Handbook on Not-for-Profit Law, edited by Matthew Harding of Melbourne Law School. Here is the description:

This Research Handbook provides a comprehensive overview of scholarship on not-for-profit law. The chapters, written by world leading experts, explore key ideas and debates in relation to: theories of the not-for-profit sector, the composition and scope of that sector, not-for-profit organisations and the constitution, the legal conception of charity, the tax treatment of not-for-profit organisations and the regulation of not-for-profits. The book serves to represent not-for-profit law as a field of academic inquiry, and to point the way to future research in that field.

And here is the table of contents:

Introduction
Matthew Harding

Part I Theories of the Not-for-Profit Sector
1. A Law and Economics Perspective on Nonprofit Organizations
Richard Steinberg and Brian Galle

2. A Primer on the Neo-Classical Republican Theory of the Non-Profit Sector (And the Other Three Sectors Too)
Rob Atkinson

3. A Charity Law Perspective on a Liberal Perspective on Charity Law
Adam Parachin

4. The Not-for-Profit Sector: A Roman Catholic View
Fr Brian Lucas

Part II The Composition and Scope of the Not-for-Profit Sector
5. An Overview of the Not-for-Profit Sector
Myles McGregor-Lowndes OAM

6. The Boundary between Not-for-Profits and Government
Darryn Jensen

7. The Boundary between the Not-for-Profit and Business Sectors: Social Enterprise and Hybrid Models
Benjamin M Leff

8. Donor Intention and Dialectic Legal Policy Frames
John Picton

Part III Not-for-Profit Organisations and the Constitution
9. Not-for-Profit Organisations, Public Law and Private Law
Kathryn Chan

10. Not-for-Profit Organisations and Equality Law
François du Toit

11. Charity Law and Freedom of Political Communication: the Australian Experience
Jenny Beard

12. Not-for-Profit Law and Freedom of Religion
Pauline Ridge

Part IV The Legal Conception of Charity
13. The History and Future of the Law of Charity
G E Dal Pont

14. Charity in Common Law and Civilian Jurisdictions
Michael H Lubetsky

15. The Heads of Charity in Comparative Perspective
Debra Morris

16. Public Benefit Post-Pemsel
Mary Synge

Part V The Tax Treatment of Not-for-Profit Organisations
17. Taxation and the Not-for-Profit Sector Globally: Common Issues, Different Solutions
Ann O’Connell

18. Subsidizing Charity Liberally
Miranda Perry Fleischer

19. Ways the Charitable Deduction Has Shaped the US Charitable Sector
Roger Colinvaux

20. The Major Tax Concessions Granted to Charities in Australia, New Zealand, England, the United States of America and Hong Kong: What Lessons Can We Learn?’
Fiona Martin

21. Reforming Tax Policy with Respect to Non-Profit Organisations
Evelyn Brody

Part VI The Regulation of Not-for-Profit Organisations
22. Principles of Regulation of Not-for-Profits
Jonathan Garton

23. Design and Implementation of a Charitable Regulation Regime
Brian Galle

24. Redefining the Measure of Success: A Historical and Comparative Look at Charity Regulation
Oonagh B Breen

25. A Regulator’s View
Susan Pascoe AM

Lloyd Mayer

Point/Counterpoint: Section 501(c)(3) and the Taxation of Speech

Mark Pulliam (Law & Liberty Blog; Retired Partner, Latham & Watkins), Is Section 501(c)(3) a Form of Censorship?:

Columbia Law School Professor Philip Hamburger is a prodigious and iconoclastic legal scholar. ... Hamburger’s latest subject, in Liberal Suppression ([University of Chicago Press] 2018), is an inquiry into the legitimacy of restrictions on the political speech of non-profit organizations.  Section 501(c)(3) exempts religious, educational, and charitable organizations from federal income tax but denies them this exemption if they engage in campaign speech for or against any candidate for public office or devote a substantial part of their activities to propaganda or other attempts to influence legislation. Section 170(c) makes contributions to qualifying non-profits tax-deductible to the donor. According to Hamburger, these exemptions and deductions amount to “many billions of dollars annually.”

Most people’s knee-jerk reaction is that section 501(c)(3)’s restrictions are justified by the tax-exempt status such non-profit organizations applied for and received. Rejecting such preconceptions in his trademark fashion, Hamburger strongly disagrees. Although non-profits are free to express a wide range of opinions—even political opinions—outside of political contests, Hamburger views section 501(c)(3) as “an extraordinary abridgement of an essential freedom,” which ought to be considered unconstitutional. Inasmuch as the Supreme Court has unanimously upheld the lobbying restrictions in section 501(c)(3), Liberal Suppression is nothing if not ambitious, but is it persuasive? Realizing that his arguments may appear to be an “uphill struggle,” early on Hamburger asks readers to “hold their skepticism in abeyance.”

After reading the book, my skepticism remains stubbornly intact.

Hamburger reminds the reader that from colonial times until the amendment of section 501(c)(3) in 1934 (and further tightening in 1954, and again in 1987), which imposed the restrictions he finds objectionable, American clergy actively participated in politics from the pulpit. The timing of the 1934 and 1954 restrictions, he points out, coincides with a period of “liberal” anti-Catholic sentiment in America. The principal culprits in Hamburger’s tale are nativists such as Ku Klux Klan imperial wizard Hiram Evans and then-Senator Lyndon B. Johnson, who faced a Catholic opponent in the 1954 senatorial primary.  Hamburger portrays them as the instigators of section 501(c)(3)’s “oppressive” political restrictions. ...

Does section 501(c)(3) “threaten the core of most First Amendment freedoms,” as Hamburger claims? Liberal Suppression, despite its undeniable erudition and interesting digressions into American political (and theological) thought and historical asides, falls short of making a compelling case. Hamburger is likewise unconvincing in his attempt to make a connection between the restrictions in section 501(c)(3) and contemporary forms of censorship such as campus speech codes. While Hamburger’s theoretical arguments seem to miss their mark, they are always engaging and sometimes contains gems like this:

"American religion has increasingly been aligned with popular liberal and progressive opinion—even to the point of looking for salvation not in another world but in this one, and not so much from God as from democratic government."

 

Philip Hamburger (Columbia), Section 501(c)(3)’s Legacy of Prejudice: Mark Pulliam Sees No Evil:

My new book, Liberal Suppression, argues that section 501(c)(3)’s speech restrictions are prejudiced and unconstitutional. These conclusions run counter to widespread assumptions, and it is therefore understandable that Mark Pulliam and other thoughtful readers find them difficult to stomach. All the same, it is important at least to come to grips with the realities that underlie the book’s conclusions, and Pulliam’s review fails to do this. To evaluate the prejudice, one must understand its nature; and to judge the constitutional arguments, one must recognize their breadth and strength.

The prejudice underlying section 501(c)(3) arose from theologically liberal anxieties about the speech of churches. And as traced by my book, the prejudice gradually expanded into a broader liberal fear about the speech of all sort of idealistic organizations. Indeed, these liberal concerns have expanded to include fears about the orthodox or stereotypical speech of individuals. It is therefore disappointing that Pulliam reduces my account of prejudice to a simplistic complaint about narrow anti-Catholicism.

My book, in his view, argues that section 501(c)(3) speech restrictions were added “in order to reduce the influence of the Catholic Church.” Certainly, anti-Catholicism was the opening wedge. But as my book repeatedly emphasizes, the relevant prejudices were not narrowly anti-Catholic. Already in the early nineteenth, they were broadened out to take aim at business corporations, and in the strain that is central to my book, they soon reached not only churches—Protestant as well as Catholic—but also the full range of churchy organizations, including eventually all sort of idealistic groups that were not religious. ...

[T]he prejudiced sentiment about the speech of ecclesiastical and other idealistic organizations is painfully evident in section 501(c)(3). Pulliam protests that I have not shown this. Well, consider just one phrase—the section’s limit on “carrying on propaganda, or otherwise attempting to influence legislation.” Those words were no accident. They came directly out of nativist literature—a literature that, again, reached across much of American society, from KKK klaverns to Ivy League philosophy departments. Once more, the low and the high had more in common than the latter wanted to acknowledge.

Pulliam’s review, in short, recognizes neither the broad character of the prejudice nor its societal depth. And in taking a confined view of both, he misunderstands the antagonisms that underlay section 501(c)(3) and still undergird a host of other speech restrictions. ...

Tax lawyers and First Amendment lawyers tend to have very different sensibilities about the speech restrictions. Tax lawyers usually observe that churches etc. are only slightly quieted down, for they can convey their messages through auxiliary organizations, such as section 501(c)(4) organizations and section 527 PACs. First Amendment doctrine, however, treats even the slightest restriction on political speech with apprehension. And the freedom of speech is not merely the freedom to have one’s message come out of someone else’s mouth; most basically it is the freedom to speak—to speak through one’s own mouth, in one’s own voice.

Unlike Pulliam, most Americans, on both sides of the issue, understand that section 501(c)(3) matters for speech. It is the only subsection of the Internal Revenue Code that is widely known—even by its section number—and that is no accident. The whole point of the section’s speech restrictions was to satisfy deeply felt theo-political anxieties about speech—anxieties that remain pervasive. And this is why so many Americans care. Whether they like or fear the speech of ecclesiastical and other idealistic organizations, they understand that section 501(c)(3) chills such groups.

 

[Hat tip:  TaxProf Blog]

NMirkay

Fleishman, Putting Wealth To Work: Philanthropy for Today or Investing for Tomorrow?

I missed this last fall, but Joel L. Fleishman (Duke) has written a new book, Putting Wealth to Work: Philanthropy for Today or Investing for Tomorrow? Here is the abstract:

By 2025, Americans will likely be donating over half a trillion dollars annually to nonprofit organizations. Those philanthropic gifts will transform significant parts of America’s civic sector landscape.

 

Philanthropy is entering an era of unprecedented growth and innovation. Established foundations such as Ford and Rockefeller are doubling down on programs tackling long-simmering problems, including global inequality, less-than-stellar education, and uneven access to health care. Many foundations are engaging in advocacy on controversial issues, exploring venture philanthropy solutions, and experimenting with impact investing. And philanthropists such as Bill Gates, Warren Buffett, New York’s high-profile financiers, and Silicon Valley’s billionaires are planning to put their wealth to work as never before: Mark Zuckerberg and Priscilla Chan recently pledged to donate 99 percent of their Facebook shares during their lifetimes, and nearly 150 others have signed the Giving Pledge to increase dramatically their “giving while living.”

 

In Putting Wealth to Work, Joel L. Fleishman provides expert analysis of contemporary philanthropy, offering invaluable insight for those engaging with and affected by charitable foundations. This is the fascinating and definitive account of philanthropy today, and an indispensable guide to understanding its inner workings, impact, and expansive potential.

For reviews, see Kirkus Review and Publishers Weekly.

Lloyd Mayer

Mayer, Fiduciary Principles in Charities and Other Nonprofits

I have posted Fiduciary Principles in Charities and Other Nonprofits, which will be published in The Oxford Handbook of Fiduciary Law (Evan J. Criddle, Paul B. Miller, and Robert H. Sitkoff, eds.). Here is the abstract:

This book chapter provides an overview of the fiduciary principles that apply to charities and other nonprofit organizations. More specifically, it discusses the criteria that trigger a fiduciary relationship, the duties of loyalty and care, other legal obligations that may apply to nonprofit fiduciaries, and the extent to which those duties and obligations may be modified or avoided. In the course of doing so, it discusses and critiques the approaches taken to these principles by the draft Restatement of the Law, Charitable Nonprofit Organizations.

Lloyd Mayer