By Elizabeth Schmidt, Aspen Publishers, New York, N.Y. 768 pages, $93
With increasing frequency over the years, the conversation with colleagues from my own department or elsewhere has turned to the offering of courses on tax-exempt organizations.
Charitable organizations and other tax-exempt entities have long been favorites of the courts under Anglo-American law. In return for such privileged legal status, the nonprofits have always been subjected to high expectations, and have been circumscribed in their permissible operations and activities. Concerns regarding nonprofit entities have ranged from fears of competition with the legitimate tax-paying businesses, participation in subversive activities, improper political influence, and support of criminal and terrorist enterprises.
The past decade has seen a definitive increase in the official scrutiny of tax-exempt organizations. The Internal Revenue Service has conducted survey questionnaires of hospitals and colleges regarding their compliance with the tax laws, individual colleges and universities have been the subjects of Congressional probes on their expenditures, and, as this review is being written, a case pending in the Eastern District of Pennsylvania alleges, without contradiction, that the IRS maintains a special unit to ensure that organizations granted tax-exempt status pass muster in supporting the Obama Administration’s political Weltanschauung.
Gone are the days when a tax-exempt organization might be simplistically viewed as an ordinary entity whose existence happens to be for a purpose specified in the Internal Revenue Code as a tax-exempt one. Those who form and/or operate charitable and other tax-exempt organizations now walk through a minefield in complying with the increasingly diverse requirements for obtaining and maintaining tax-exempt status. Elizabeth Schmidt has addressed this brave new environment with “Nonprofit Law: The Life Cycle of a Charitable Organization,” obviously intended as a text for a course on tax-exempts, but with utility beyond the confines of the classroom.
As the title implies, the book lays out, in a seamless progression, the issues to be confronted by a charitable organization, beginning with its founding, through its fundraising activities and ongoing operations, and into its termination.
Schmidt’s tome is a casebook, and, as such, most of its verbiage is taken from other sources (with the appropriate citations and permissions). The chapters each begin with a statement of purpose and learning objectives, followed by a paragraph captioned “To think about as you read.” At convenient section breaks within each chapter are “Notes and Questions.”
It is all but unavoidable for a taxation text of any value to limit its citations to statutes and judicial opinions; practitioners of taxation law need to consult such genres of authorities as Treasury Regulations, Revenue Rulings, Private Letter Rulings, Technical Advice Memoranda, and statements by IRS officials. Schmidt’s casebook includes specimens of these, and more, bringing items such as scholarly articles, Congressional hearing testimony, review committee reports, et cetera, into its big tent. Most notable in this regard is the inclusion of the case of Committee to Save Adelphi v. Diamondopoulos, a case decided not by a court but by the New York State Board of Regents, but which nevertheless has significant implications for the governance of tax-exempt organizations in New York and elsewhere. Schmidt’s willingness to draw the book’s quoted materials from beyond the traditional confines of the statutes and reported court decisions serves the reader quite well.
Unfortunately, the editors and publishers of the book did not set their field of vision so broadly. The back material of the book includes only a general Index and a Table of Cases decided in the courts, but no tables of statutes, Treasury Regulations, or any other types of authorities quoted or cited. This means, for example, that the reader who seeks to access the aforementioned Committee to Save Adelphi case must read sequentially through the Table of Contents if not the entire book. The inconvenience to the reader in this regard, while comparatively minor, is nevertheless palpable.
The book does have some substantive deficiencies. The chapter on Accountability, useful and inclusive as it is, completely omits discussion on the Sarbanes-Oxley Act and the ongoing trend towards holding tax-exempts to the Sarbanes-Oxley standards which are statutorily imposed upon the commercial security-issuing entities. Much discussion in that chapter would be far clearer to the reader if explained in the context of this trend, as would the future stringencies which surely will be imposed upon the tax-exempts and their personnel.
Another issue not discussed in the book is the so-called “trust fund” liability imposed by Internal Revenue Code §6672 (and the analogous state statutes) upon those individuals who fail in their responsibility to account for and pay over to the IRS the required withholdings from employees’ paychecks. In light of the aforementioned expansion of the Sarbanes-Oxley accountability standards, there is great likelihood that the IRS and the state taxation authorities will take a closer look at the board members of tax-exempts in assigning responsibility for unremitted withholding taxes. Moreover, I.R.C. §6672 specifically provides a safe harbor for honorary board members of tax-exempt organizations, discussion of which would have been highly appropriate in the book.
The field of tax-exempt organizations is so broad and robust that it is difficult to produce a textbook without some sort of lacunae. Any academic text would likely require some sort of supplementation by the instructor; the few gaps in the substance of this particular casebook are certainly bridgeable.
Many lawyers retain their casebooks from law school for years after graduation, and occasionally consult one or more of them in their practices. Ms. Schmidt’s new casebook will likely be shelved among such casebooks, and cracked open by practitioners who seek to organize a tax-exempt organization, represent one in litigation, plan to sue one, or have a client contemplating serving on a charitable organization’s board.
Bringing a new course to a university is a complex process. It is not clear whether or when a course on tax-exempt organizations will finally come to my own institution. One obstacle that will not impede such a course offering, however, is the want of an appropriate text on the subject.