Fiduciaries of Charities
As others have observed, however, state law is not the only regulator of nonprofit fiduciary behavior. Through amending and enforcing the Internal Revenue Code (Code), Congress and the Internal Revenue Service (Service) increasingly are regulating charity fiduciaries. Nowhere is this phenomenon clearer than in the enactment and enforcement of the excise taxes imposed on managers and other insiders of charities. The excise tax regime resulting from legislative efforts to check fiduciary overreaching is a maze of technical and seemingly inconsistent rules governing compensation and other transactions between charities and their managers and large donors. Yet existing literature offers no comprehensive analysis of the assumptions about fiduciary behavior that appear to underlie the excise tax regime governing charities.
This Article begins the scholarly process of filling this void by identifying or postulating, and then evaluating, the assumptions about fiduciary behavior and state law that apparently underlie the federal excise taxation of compensation paid to fiduciaries and other insiders of tax-exempt charitable entities. Part II surveys the relevant statutory classification of charitable entities and state law fiduciary duties owed by members of a charity’s governing board. Part III discusses in detail the assumptions about fiduciary behavior and state laws regulating fiduciary behavior that arguably explain—or in some cases fail to explain—the current federal excise tax regime as applied to compensation paid to fiduciaries, large donors, and related persons. Part IV summarizes the consistencies and inconsistencies among these fiduciary assumptions and discusses the implications of this analysis for reforming federal law.