A majority staff director for the Senate Finance Committee said in an April discussion on philanthropy in the 21st century that perhaps it might be time to consider the tax liability for an entity that is neither wholly charitable nor wholly for-profit.  In fact, the director said that the Senate Finance Committee wrestled with the problem of a quasi-charitable entity in enacting the health care legislation, and said that the tax treatment of not-for-profit organizations might be revisited further in the tax reform context.

Traditionally, the Code has used a strictly charitable or for-profit dichotomy for businesses – they necessarily had to go in one of these two “buckets.”  Now, given what is happening in society, many argue that the Code must evolve to address businesses that have both quasi-charitable and for-profit goals and receive tax treatment that accurately reflects that status.  In fact, some corporations that are for-profit, particularly in the technology field, often make charity a main priority.  And even within the charitable context, charities themselves are beginning to receive different treatment.  The new requirements for not-for-profit hospitals brought on by the Patient Protection and Affordable Care Act is a clear example of this distinctive charitable treatment.

This evolution has made it almost necessary to create and adhere to a pluralistic model where some charities receive more favorable treatment than other charities.  The problem with this approach is that you are effectively elevating one cause for favorable policy, regulation, or tax treatment over another.  And latent in this treatment is the question of who exactly should decide what constitutes a service worthy of special initiatives and why a particular cause should receive favorable treatment in the first place.  Moreover, choosing the formula to decide what constitutes the favorable kind of treatment can also be complicated.

A lingering question within this discussion is how this new tax treatment would affect the L3C, often referred to as the for profit entity with a not-for-profit soul.  The L3C would seemingly fit the quasi-charitable and for-profit goals qualifying for a different tax treatment so it will be interesting to see how this entity would be treated under any new tax treatment rules for charities, including the development of a pluralistic model.  We will just have to wait and see.

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Photo of A. Nicole Campbell A. Nicole Campbell

A. Nicole Campbell is Associate General Counsel at the Open Society Institute (“OSI”), a private operating and grantmaking foundation in New York City. As Associate General Counsel, Nic works on a wide range of exempt organization matters at the foundation, including tax compliance…

A. Nicole Campbell is Associate General Counsel at the Open Society Institute (“OSI”), a private operating and grantmaking foundation in New York City. As Associate General Counsel, Nic works on a wide range of exempt organization matters at the foundation, including tax compliance and grantmaking, as well as other corporate, compliance, and governance matters. Prior to joining OSI, Nic was an associate in Proskauer’s Tax Department and a member of its Not-for-Profit/Exempt Organizations Practice Group where she advised not-for-profit clients on a variety of matters, including applying for and maintaining exemption from federal income tax, structuring joint ventures and partnerships with taxable entities, and excise tax issues. In 2009, while at Proskauer, Nic went on leave to The New York Community Trust as its Associate General Counsel and was responsible for handling a range of legal matters, including charitable contributions, donor-advised funds, and corporate and governance issues. From 2007 to 2009, she was recognized by the New York State Bar Association for her pro bono service, earning her the title of “Empire State Counsel.” In 2008 and 2009, she was honored by The Legal Aid Society as one of the recipients of the Society’s Pro Bono Publico Awards for outstanding service to the Society and its clients. She is also a past recipient of the Proskauer Rose Golden Gavel Award for her commitment to pro bono service.
Nic is an Editor of and contributor to the Not-For-Profit/Exempt Organizations Blog and she has also been a presenter at Proskauer’s annual “Trick or Treat Seminar,” where she discusses recent developments affecting tax-exempt entities.
At Northeastern University School of Law, Nic was a Teaching Assistant for the Legal Practice Writing Program and a Teaching Facilitator for the Law Skills in Social Context Program.
As an Educational Counselor for Massachusetts Institute of Technology, Nic interviews high school students who are interested in attending. Nic is also a member of the Board of Directors of Ardea Arts, Inc., a not-for-profit organization dedicated to developing and producing new American opera and music theater works for multi-generational audiences. Nic is also founding Director of Access Caribbean Assistance Fund, a not-for-profit organization that provides health and education assistance to needy individuals in the Caribbean.