The Law of Fundraising

Bruce R. Hopkins, Alicia M. Beck

• Publisher: Wiley
• Year: 2022
• Print ISBN: 9781119873440
• eBook ISBN: 9781119873457
• Edition: 6
• Topic: Business
• Subtopic: Nonprofit Organizations & Charities
• Index: Business

Stay abreast of the latest developments in charitable fundraising legislation and regulation

Effective fundraising has never been more important to the success of a nonprofit organization than it is today. But national- and state-level legislative and administrative control over charitable fundraising is expanding quickly.

In the newly revised Sixth Edition of The Law of Fundraising, distinguished lawyers and tax-exempt organization experts deliver a comprehensive and authoritative blueprint of the increasingly complex tangle of federal and state regulations and legislation that govern charitable fundraising in the United States. The authors explore the administrative, tax, and constitutional implications of the latest legislation, regulation, IRS pronouncements, private letter rulings, and technical advice memoranda. The book also includes:

• In-depth explorations of the anatomy of charitable fundraising, including different methods of fundraising and the roles of accountants and lawyers in the fundraising process
• Comprehensive examinations of federal and state regulation of fundraising, including the proper delegation of legislative authority and the treatment of fundraising disclosures
• Regulatory developments on the horizon, including major legislative proposals and new regulatory issues in areas including Internet fundraising

An indispensable resource for tax-exempt board members, executives, managers, fundraisers, and other leaders, the latest edition of The Law of Fundraising will earn a place in the libraries of the accountants, lawyers, and other regulated professionals who serve nonprofit organizations.

CHAPTER ONE
Government Regulation of Fundraising for Charity

• § 1.1 Charitable Sector and American Political Philosophy
• § 1.2 Charitable Fundraising: A Portrait
  • (a) Scope of Charitable Giving in General
  • (b) Noncash Gifts Statistics
    • (i) Form 8283 Reporting
    • (ii) Types of Noncash Contributions
    • (iii) Decline in Returns and Amounts
    • (iv) Average Contribution Amounts
    • (v) Types of Charitable Organizations
  • (c) Online Charitable Fundraising
• § 1.3 Brief History of Government Regulation of Fundraising
• § 1.4 Contemporary Regulatory Climate

Charitable organizations are an integral part of U.S. society; many of them must engage in the solicitation of contributions and grants to continue their work, which benefits that society. Yet both these organizations and their fundraising efforts are under constant criticism and immense regulation. Some of this regulation comes from the many state charitable solicitation acts—statutes that are designed to regulate the process of raising funds for charitable purposes. Other aspects of this regulation are found in the federal tax law, with mounting legislation and application of legal principles by the Internal Revenue Service¹ and the courts. Increasingly, other federal laws are contributing to the overall mass of regulation of charitable fundraising.

One of the pressing questions facing philanthropy in the United States is whether this form of regulation is far too extensive and thus whether it is unduly stifling the nation's independent and voluntary sector. Another attitude is that charity, and fundraising for it, has become a major “industry,” and warrants regulation to minimize abuse, protect prospective and actual donors from fraud and other forms of misrepresentation, and reduce waste of the charitable dollar.

Before examining the extent of this regulation, and the accompanying contemporary issues and trends, the role of charitable organizations must be placed in its historical and public policy context.

§ 1.1 CHARITABLE SECTOR AND AMERICAN POLITICAL PHILOSOPHY

Because modern U.S. charity evolved out of the common law of charitable trusts and property, and has been accorded exemption from income taxation since the beginning of federal tax policy and gifts to charity are tax-deductible, the contemporary treatment of charitable organizations is understandably fully reflected in the federal tax laws.

The public policy rationale for exempting organizations from tax is illustrated by the category of organizations that are charitable, educational, religious, scientific, literary, and similar entities,² and, to a lesser extent, social welfare organizations.³ The federal tax exemption for charitable and other organizations may be traced to the origins of the income tax,⁴ although most of the committee reports accompanying the 1913 act and subsequent revenue acts are silent on the reasons for initiating and continuing the exemption.

One may nevertheless safely venture that the exemption for charitable organizations in the federal tax statutes is largely an extension of comparable practice throughout the whole of history. Congress believed that these organizations should not be taxed and found the proposition sufficiently obvious as not to warrant extensive explanation. Some clues may be found in the definition of charitable activities in the income tax regulations,⁵ which include purposes such as relief of the poor, advancement of education or science, erection or maintenance of public buildings, and lessening of the burdens of government. The exemption for charitable organizations is clearly a derivative of the concept that they perform functions that, in the organizations' absence, government would have to perform; therefore, government is willing to forgo the tax revenues it would otherwise receive in return for the public services rendered.

Since the founding of the United States, and earlier in the colonial period, tax exemption—particularly with respect to religious organizations—was common.⁶ Churches were openly and uniformly spared taxation.⁷ This practice has been sustained throughout the nation's history—not only at the federal but also at the state and local levels, most significantly with property taxation.⁸ The U.S. Supreme Court, in upholding the constitutionality of the religious tax exemption, observed that the “State has an affirmative policy that considers these groups as beneficial and stabilizing influences in community life and finds this classification [exemption] useful, desirable, and in the public interest.”⁹

The Supreme Court early concluded that the foregoing rationalization was the basis for the federal tax exemption for charitable entities. In one case, the Court noted that “[e]vidently the exemption is made in recognition of the benefit which the public derives from corporate activities of the class named, and is intended to aid them when not conducted for private gain.”¹⁰

The U.S. Court of Appeals for the Eighth Circuit observed, regarding the exemption for charitable organizations, that “[o]ne stated reason for a deduction or exemption of this kind is that the favored entity performs a public service and benefits the public and relieves it of a burden which otherwise belongs to it.”¹¹ One of the rare congressional pronouncements on this subject is further evidence of the public policy rationale. In its committee report accompanying the Revenue Act of 1938, the House Ways and Means Committee stated:

The exemption from taxation of money or property devoted to charitable and other purposes is based upon the theory that the government is compensated for the loss of revenue by its relief from financial burden which would otherwise have to be met by appropriations from public funds, and by the benefits resulting from the promotion of the general welfare.¹²

One federal court observed that the reason for the charitable contribution deduction has “historically been that by doing so, the Government relieves itself of the burden of meeting public needs which in the absence of charitable activity would fall on the shoulders of the Government.”¹³

Other aspects of the public policy rationale are reflected in case law and the literature. Charitable organizations are regarded as fostering voluntarism and pluralism in the American social order.¹⁴ That is, society is regarded as benefiting not only from the application of private wealth to specific purposes in the public interest but also from the variety of choices made by individual philanthropists as to which activities to further.¹⁵ This decentralized choicemaking is arguably more efficient and responsive to public needs than the cumbersome and less flexible allocation process of government administration.¹⁶

The principle of pluralism was stated by John Stuart Mill, in On Liberty (1859), as follows:

In many cases, though individuals may not do the particular thing so well, on the average, as the officers of government, it is nevertheless desirable that it should be done by them, rather than by the government, as a means to their own mental education—a mode of strengthening their active faculties, exercising their judgment, and giving them a familiar knowledge of the subjects with which they are thus left to deal. This is a principal, though not the sole, recommendation of jury trial (in cases not political); of free and popular local and municipal institutions; of the conduct of industrial and philanthropic enterprises by voluntary associations. These are not questions of liberty, and are connected with that subject only by remote tendencies; but they are questions of development.… The management of purely local businesses by the localities, and of the great enterprises of industry by the union of those who voluntarily supply the pecuniary means, is further recommended by all the advantages which have been set forth in this Essay as belonging to individuality of development, and diversity of modes of action. Government operations tend to be everywhere alike. With individuals and voluntary associations, on the contrary, there are varied experiments, and endless diversity of experience. What the State can usefully do is to make itself a central depository, and active circulator and diffuser, of the experience resulting from many trials. Its business is to enable each experimentalist to benefit by the experiments of others; instead of tolerating no experiments but its own.

This same theme was echoed by then-Secretary of the Treasury George P. Shultz, in testimony before the House Committee on Ways an...

Table of contents

• Cover
• Table of Contents
• Title Page
• Copyright
• A Letter to the Reader
• Preface
• CHAPTER ONE: Government Regulation of Fundraising for Charity
• CHAPTER TWO: Anatomy of Charitable Fundraising
• CHAPTER THREE: States' Charitable Solicitation Acts
• CHAPTER FOUR: State Regulation of Fundraising
• CHAPTER FIVE: Federal Regulation of Fundraising
• CHAPTER SIX: Federal Regulation of Fundraising
• CHAPTER SEVEN: Import of Form 990
• CHAPTER EIGHT: Prospective Federal Regulation of Fundraising
• CHAPTER NINE: Standards Setting and Enforcement by Watchdog Agencies
• CHAPTER TEN: Overviews, Perspectives, and Commentaries
• About the Authors
• Online Resources
• Index
• End User License Agreement