What does that have to do with charity? As it turns out, we have the same definition of charity. We seem to know it when we see it.
I spent the weekend in a scholarly workshop with political theorists, legal scholars, historians, and sociologists who specialize in charity, philanthropy, and civil society. Among many things I learned is that, in fact, charity is undefined in American law and practice.
When the American colonies revolted against King George III, they effectively threw out English law. Once the Revolutionary War ended, each of the colonies (now states) needed to wipe clean the old laws and start anew. Out went the English Statutes of Charitable Uses. In particular, writes Ray Madoff in Immortality and the Law, "The charitable trust, associated as it was with privilege, the dead hand, and massive wealth held in perpetuity, was viewed with particular suspicion." (Madoff, 2010, p 92). What has resulted, argues Madoff, is a tautological definition that comes mostly from the Restatement of Trusts, which says that a purpose is considered charitable "if its accomplishment is of such social interest to the community to justify permitting the property to be devoted to the purpose in perpetuity." (Madoff, p 88) In other words something can be dedicated perpetually to charity if it can be justified being perpetually charitable.
Now, I know you're asking yourself, what about the parameters of the 501 (c) (3) statutes, which most of us would argue define charitable? First, these don't define charitable, they define "tax exempt." We get into a bit of further tautology (and Justice Stewart returns to mind) when we actually read section 501 (c) (3), which states:
"The exempt purposes set forth in section 501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals. The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency." (My emphasis in bold italics)Every viewer of Sesame Street knows that you can't define a word by using the word. It turns out that the tax code doesn't help us define charitable, since it depends on the use of the term.
The roots of these broad parameters lie in English Common law, despite the Revolutionaries' rejection of the actual code. They have been much filtered through time as Oliver Zunz demonstrates in Philanthropy in America (2011), particularly with regard to political activity and in relation to activities funded by the State. What is particularly notable given the vagaries of the definition of charitable, is that "The law of charitable trusts is all or nothing....There are no degrees of charitableness...." (Madoff, p 90) We may not know exactly what it means, but you're either all it or not it.
Now, I am not an originalist by any stretch of the imagination. Fluidity in social definitions over time is both a historical reality and, I think, important to a healthy society. Both Madoff and Zunz tell great stories of how time and place have shaped how we assess charitability, how it has changed through history, and how political, economic, religious and social forces play parts in our fluidity of definitions and parameters over time. Want another great read about our twisty road to the present? Try Jonathan Levy's Freaks of Fortune (Harvard 2012) which focuses on the role of risk over time and, in doing so, sets forth an outline of the relationships between fraternal orders (such as the Masons and the Elks), trade unions, insurance companies and our present-day understanding of tax-exempt nonprofit organizations.
Why might you care about any of this? (Assuming that you didn't spend your weekend reading political theory.) Because, what is and isn't charitable is, well, how else can I say this, big business. Big as in $300 billion in giving a year, $600 billion in endowed, untaxed, charitable foundation assets. Toss in many billions more to capture hospitals, universities, and museum endowments.
It's also the core of a conversation and new report released today about the IRS and news organizations. (Livestream of event, Monday March 4, 10 am EDT) Now, you know things have been hard for the news business. And independent news is important - some call it a pillar of democracy, others prefer Edmund Burke's term, "the fourth estate." The new report refers to independent news as a "public good," and calls on the IRS to update its practices to make it easier to finance, produce, and distribute these goods using private, tax deductible resources. Specifically, the report says:
" ...the IRS approach needs to be updated. As applications for tax- exempt status from media organizations are submitted to fill the void in accountability journalism, the current policy present serious and unnecessary obstacles to critical innovation." (p. 3)
More interestingly, the report asserts the following:
"The group confirmed that there have indeed been lengthy delays and even rejections of tax-exempt status for organizations seeking to produce local news and disseminate information in the public interest, as the IRS applies an antiquated and counterproductive standard to a dynamic sector. The group has concluded that the IRS approach needs to be modernized. Specifically, in deciding whether to grant an organization tax exempt status, we recommend that the IRS shift its focus from operational distinctions between nonprofits and for profits that have been made irrelevant by developments in communications technology. Instead, the IRS should evaluate whether the media organization is engaged primarily in educational activities that provide a community benefit, as opposed to advancing private interests, and whether it is organized and managed as a nonprofit tax-exempt organization"(p 2, my emphasis added)Ignore for a moment the odd final clause of that last sentence (it seems to be saying the IRS should grant an organization nonprofit, tax exempt status if it "is organized and managed as a nonprofit tax-exempt organization." (Justice Stewart? Anyone?))
The bold, italicized section is what interests me. Remember, we have no fixed definition of charitable. This report asks the IRS to ignore operational distinctions and focus on the intended activities of the enterprise - "whether the media organization is engaged primarily in educational activities that provide a community benefit..."
This is a big change. I've been writing for years about the challenges of equating "tax deductibility" with"enterprise form." The shifts that lead to the social economy, the rise of the sharing economy, and, the same communications technologies that the report above cites are making it harder and harder to limit the use of private resources for "public goods" to any one kind of organizational form.
In a timely complication to the particular case of local news organizations, Warren Buffett, the noted investor, announced on Saturday in his annual letter from Berkshire Hathaway that he would be looking to buy more local newspapers in the coming year (the company bought 28 papers in the preceding 15 months). As he put it, "At appropriate prices – and that means at a very low multiple of current earnings – we will purchase more papers of the type we like."
It isn't every day that we hear about a major investor's excitement about a certain type of investment in direct juxtaposition to a call to ease the path for those same enterprises to become nonprofit organizations. How do we make sense of the commission's interest in providing news media enterprises with tax subsidies in light of a "buy" statement from "the Oracle of Omaha?" These two views offer a stark choice of how to produce the same "public good" - Buffett through market capital and the commission through tax exemption and charitable support.
As you read the Nonprofit News Media report, please remember, this is not just about the news. The tax code and the tax exempt status it provides speaks for us as a society. It says, through its convoluted mechanisms of tax exemption and organizational form, what we choose to recognize - and to privilege - as vital parts of our democracy and critical parts of our civil society.