The Donative Theory of the Charitable Tax Deduction

Drawing not just on the law, but also on economic, political, and moral theory, Professors Colombo and Hall develop a much-needed theory of the charitable tax exemption that rationalizes the exemption, comports with legal precedent, and would yield a policy that would be administratively workable. The tradition of tax-exempt status for nonprofit charitable organizations is well established, and few would argue with the principle. But the tax-exempt sector of the economy is vast and rapidly growing, resulting in the loss of billions of dollars of tax revenue. At the same time, we have no consensus on what purpose the charitable tax exemption serves, let alone agreement on what constitutes a charity.In this important addition to the theory of tax law, Colombo and Hall develop an original donative theory that links the charitable tax exemption to the ability of an organization to derive donative support from the community. Their theory not only makes intuitive sense but also receives support from economic, political, and moral theory. Its implications would rationalize the charitable tax exemption, comport with legal precedent, and simplify the administration of the law.The Charitable Tax Exemption is a major contribution to the theory of tax law and should be essential reading for a wide range of lawyers dealing with taxes. It will also be enlightening for anyone involved in the operation of a nonprofit organization.