Charity in the 21st Century: Trending Toward Decay

The turn of the century seemed to bring with it a sharply critical focus on charity.(FN1) Under federal tax law, charity includes organizations that are "organized and operated exclusively for religious, charitable, scientific, testing public safety, literary, or educational purposes." This single phrase provides standard not just exemption over 1.2 million (which diverse in purpose, size, function, complexity, effectiveness) but also access several nontax preferences, including eligibility receive deductible contributions (for income, estate, gift purposes),(FN2) tax-exempt financing,(FN3) State property exemptions,(FN4) regulatory relief, among other benefits.(FN5) concerns about charities surfaced largely through press reports legion: spending earmarked non-earmarked purposes; excess compensation organization insiders; mission drift -- deliberate, aided by faulty corporate governance; acceptance when donors others principal beneficiaries; participation illicit shelter transactions; non-charitable accumulations income; failure provide charitable services; use form questionable investment practices; political campaigns; self-dealing transactions, name few.(FN6) response ongoing scandals Internal Revenue Service (IRS) Congress was mixed. As unfolded, IRS continually pointed abuses need address them,(FN7) asserted sector is "compliant," notwithstanding minimal examination rate.(FN8) part its enforcement efforts, completed an ambitious overhaul annual information return (and tax-exempt) file each year (the Form 990);(FN9) undertook intensive studies two largest segments sector: hospitals,(FN10) colleges universities;(FN11) made inquiry into executive practices;(FN12) raised new questions governance.(FN13) IRS's continuing actions indicate, at minimum, suspicion indeed has large pockets noncompliance oversight, perception it, necessary. But can only do so much. Meaningful change any underlying weaknesses law ultimately must come from Congress.