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79 UMKC L. Rev. 163 (2010-2011)
Good Governance: Has the IRS Usurped the Business Judgment of Tax-Exempt Organizations in the Name of Transparency and Accountability

handle is hein.journals/umkc79 and id is 165 raw text is: GOOD GOVERNANCE: HAS THE IRS USURPED THE BUSINESS JUDGMENT OF TAX-EXEMPT ORGANIZATIONS IN THE NAME OF TRANSPARENCY AND ACCOUNTABILITY? Karen Donnelly* I. INTRODUCTION So shines a good deed in a naughty world.' The good deeds of charitable organizations have been long memorialized in our society and in our tax code.2 The nonprofit sector is essential to our national fabric-without it, who would feed the needy, cure the sick, provide education to the poor, and lead our nation's churches, mosques, and synagogues?3 This is the very reason Congress created the tax subsidy for charitable organizations under the Internal Revenue Code.4 Grounded in the constitutional principles of free association and free speech, charities provide the services to others that our governments and for- profit entities cannot.' But do these good deeds still shine bright in a dark and naughty world? The hot debate in tax-exempt organization law today suggests not. The question is how to regulate public charities effectively and efficiently to ensure transparency and accountably in the independent sector. The response: increase regulation of nonprofit governance. Created under state corporation laws, nonprofit organizations and their internal governance practices fall within the regulatory ambit of the states' attorneys general. Traditionally, * University of Missouri-Kansas City School of Law, J.D. 2010; University of Kansas, B.A. English Literature, B.S. Journalism, 2002. The author would like to thank Professor Christopher Hoyt for his comments and guidance as faculty advisor and the UAKC Law Review, especially Amy Goostree and Jane Francis, for their hard work and support. ' WILLIAM SHAKESPEARE, THE MERCHANT OF VENICE act 5, sc. 1. 2 Sarah Hall Ingram, Commissioner, Tax Exempt & Government Entities, Internal Revenue Service, Remarks Before the Georgetown University Law Center Continuing Legal Education: Nonprofit Governance-The View from the IRS (June 23, 2009), http://www.irs.gov/pub/irs- tege/ingram gtown governance_062309.pdf. See also I.R.C. § 501(a), (c)(3) (2006) (listing organizations exempted from federal income tax, including public charities). The long- memorialized nonprofit sector dates its structural beginning back to England's Statute of Uses in 1601. Jon Pratt, How Did We Get Here?: The Regulatory Framework 2005, THE NONPROFIT QUARTERLY, Special Issue 2005, at 44. (Parliament codified the existing common law provisions for charitable organizations. In the U.S., the adoption of the federal income tax, and the desire for a charitable deduction, propelled the formalization of tax exempt organizations-incorporated and chartered by state government, and made exempt first by the federal government.). Ingram, supra note 2, at 1. 4 See id.; Pratt, supra note 2, at 21. Ingram, supra note 2, at 1; Pratt, supra note 2, at 18-24. See also Riley v. Nat'l Fed'n of the Blind of N.C., Inc., 487 U.S. 781 (1988) (holding charitable solicitation is protected speech and not commercial speech); Village of Schaumburg v. Citizens for a Better Environment, 444 U.S. 620 (1980); NAACP v. Alabama, 357 U.S. 449 (1958) (holding charitable organizations can enjoy the First Amendment protection of their right to associate). 6 Nonprofit organizations created by federal statutes do not have their governance regulated by the states. See I.R.C. § 501(c)(1) (2006) (Any corporation organized under Act of Congress). See

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