Is Economic Development Really Charity?: Evaluating "Trickle Down Charity"
SEP 17, 2014
8:30 AM - 9:30 AM
As our nation's philanthropic sector becomes more entrepreneurial, ambitious and influenced by the private sector, longstanding legal standards on what constitutes "charity" struggle to stay relevant. More and more often, organizations that seek classification by the Internal Revenue Service as a Section 501(c)(3) charity (and the substantial public subsidy that this status unlocks) are not the soup kitchens and homeless shelters of yesteryear, but highly sophisticated ventures that accomplish their missions in ways that are less obviously charitable.
In no case is this more true than in the recent widespread emergence of nonprofit organizations whose primary activity is providing direct aid to for-profit businesses. These organizations invest in privately-owned, profit-seeking ventures hoping that some day this aid will help those in need in the form of jobs and a flourishing economy. While influential and, in some cases, transformative to cities and regions in economic distress, this form of charity (which I term “trickle down charity”) turns the traditional charitable services delivery model on its head by advancing private interests first and betting that benefit to a charitable class will follow. My lecture will discuss the analytic challenges that trickle down charity poses to the IRS when it determines whether an organization like this merits 501(c)(3) status and my proposal for how the IRS can enliven its private benefit doctrine to more effectively regulate trickle down charity and help protect the overall integrity of our philanthropic sector.