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UC Law Journal

Ellen P. Aprill

Abstract

The standard view of the relationship between government and the nonprofit charitable sector treats them as separate and distinct. But they are not. Numerous federal agencies have statutory authority to receive tax-deductible charitable deductions. Their ability to do so, however, undermines the oversight accomplished through the constitutionally mandated appropriations process. Congress has also created many nonprofit tax-exempt organizations. These entities enjoy flexibility as to fundraising, investment, and spending that government agencies lack. However, they avoid the accountability that various federal statutes impose on government agencies, on the one hand, and that state nonprofit laws accomplish for private nonprofit organizations, on the other. At the same time, these congressionally established nonprofits retain significant governmental ties, such as service by government officials on their boards and reliance on appropriations. These practices produce at best a precarious balance between the governmental and non-governmental. Moreover, Congress has bestowed honorific charters on dozens of preexisting nonprofit tax-exempt organizations, a practice that can erroneously imply congressional endorsement and oversight of these groups. For the first time in the scholarly literature, this Article examines all of these types of entities and the issues they raise under tax law, nonprofit law, constitutional law, and administrative law. As one example, the Smithsonian Institution, the first and arguably the most prominent congressionally created nonprofit, engaged an independent review commission in 2007 to investigate widespread reports of inappropriate behavior by its then Secretary. The commission identified failures of governance and management, faulting the lack of federal common law regarding board duties and obligations. It questioned the ability of the Chief Justice and the Vice President to devote the hours required to discharge their fiduciary duties as Smithsonian Institution board members. It called for the Smithsonian, which is funded primarily by appropriations, to adopt procedures for transparency, disclosure, and compensation consistent with statutes governing federal agencies. The Smithsonian accepted some but not all of these recommendations. In particular, no change to its board structure has taken place. Emphasizing issues of governance, this Article makes specific recommendations to increase accountability of both government agencies and congressionally established nonprofit entities, such as urging Congress to curtail the widespread practice of appointing government officials to nonprofit boards. More fundamentally, it calls for acknowledgment of these hybrid entities. It argues for viewing government and charity as resting on a continuum rather than each floating in its own untethered conceptual space. This new approach clarifies our understanding of government, the nonprofit sector, and the relationship between them. Seeing these entities on a continuum reminds us that our nation faces a choice between the private and public—or some mix of the two—in funding activities in which both government and charitable nonprofits engage.

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