Defining Charity: Declaratory Judgments of Exempt Status

Thu, 6/6: 10:00 AM - 11:45 AM
Paper Session 
Hyatt Regency Denver at Colorado Convention Center 
Room: Capitol 1 


Abstract: Defining Charity: Declaratory Judgments of Exempt Status

Until 1976, it was very difficult for an organization whose application for recognition of exempt status had been denied (or revoked) by the IRS to obtain judicial review of that determination. In most cases, such organizations would have no net income, and hence no income tax liability. Without such liability, they could not generate a case or controversy that would be ripe for adjudication. In addition, the anti-injunction act generally precluded an action for a declaratory judgment to the effect that the organization was entitled to exempt status. The only means routinely available would be to have a donor make a donation, and seek to deduct it. The validity of the deduction would depend on the exempt status of the recipient organization, which would then become an issue ripe for adjudication. But that route was usually unattractive. The IRS might not audit the donor's return. If it did audit the return, every issue that might be raised by that return would be on the table, and few donors would welcome that sort of scrutiny.
As a consequence, there were only a handful of decided cases involving the standards for qualification for exempt status during the first sixty-three years (1913-1976) of our modern income tax. But in 1976, Congress addressed this problem by adding section 7428 to the Internal Revenue Code. This section authorized, from that date forward, the U.S. Tax Court (and a few other specific courts) to review adverse determinations as to exempt status.
There followed an outpouring of judicial opinions on what sort of purposes are sufficiently "charitable" to meet the requirements of section 501(c)(3). In the years since, there have been over 100 such cases decided. This paper is a review of those decisions. It looks at how successful litigants have been, and what section 7428 has done to contribute to shaping the contemporary view of charity. 


Richard Schmalbeck, Duke University  - Contact Me
Email All Contacts