Social, Legal Changes Threaten Nonprofit Credibility, Book Says

A Corporate Form of Freedom: The Emergence of the Nonprofit Sector
by Norman I. Silber

In the past 50 years, courts and legislatures have significantly altered the way they determine nonprofit status, possibly to the detriment of the charity world, writes the author of this new book. Instead of requiring organizations seeking tax-exempt status to prove that they would do good for society, courts increasingly allowed a broader range of groups to qualify, he says, such as catering businesses, covens of witches, and mobile-home associations.

The changes allowed nonprofit organizations to flourish, but they also prompted a relaxation of regulation and oversight that has damaged the credibility of nonprofit groups, writes Norman I. Silber, a professor of law at Hofstra University, in Hempstead, N.Y. As a result, Americans are more likely to hear about misdeeds at charities, Mr. Silber writes, causing “powerful public skepticism . . . about whether most nonprofit organizations operate honestly and serve worthwhile social objectives that justify their special treatment.”

In this legal history, Mr. Silber identifies connections between societal change and modifications to the laws that govern nonprofit incorporation. Historically, judges exercised great discretion over determination of nonprofit status. However, the 1950’s and 60’s marked a period of great change, Mr. Silber explains, when new legal theories rejected strong judicial power, and the fledgling civil-rights movement promoted a norm of nondiscriminatory treatment that translated into judicial use of what Silber calls a “less taxing sort of analysis” for determining nonprofit status. The courts, Mr. Silber writes, awarded tax exemptions to any nonprofit group that would further the goals and purposes of its founders — instead of giving exemptions exclusively to groups with a “socially beneficial purpose,” as had earlier generations of judges. Simultaneous changes to the tax system that limited the power of taxing bodies and regulators “reduced the public and private accountability of most nonprofit organizations,” Mr. Silber writes.

Chapters discuss the advantages of nonprofit status and the historical differences in regulating commercial and nonprofit entities; examine case law in New York and other states to demonstrate how judges imposed their personal social values on pre-1950’s nonprofit groups; show how societal changes influenced changes in the legal system; and describe the ramifications of what Mr. Silber considers laissez-faire regulation of nonprofit groups.

In the final chapter Mr. Silber suggests that the challenge for the next generation of legal scholars and policymakers will be to redefine the line between privilege and entitlement to give nonprofit groups the freedom they need to carry out their missions, while at the same time not allowing irresponsible people to take advantage of the tax laws.

Publisher: Westview Press, 5500 Central Avenue, Boulder, Colo. 80301; (800) 386-5656; http://www.westviewpress.com; 184 pages; $29.00; I.S.B.N. 0-8133-9762-6.