Non-Profit Law: A Too Often Ignored Orphan
A Campbell Law Perspective
Article Date: Tuesday, April 24, 2012
Written By: Lynn R. Buzzard
Nonprofit law might join Rodney Dangerfield in complaining “I don't get no respect!” Judging by the limited number of law school courses on nonprofit law and the few textbook options, the subject seems to be a largely ignored specialty – maybe even an orphan in legal education. Compared to the number of offerings in traditional business areas such as tax, planning, and other special electives, nonprofit law is the runt of the litter.
This is true in spite of the nonprofit sector’s playing a prominent role in the United States whether measured by economic impact or social and political influence. Put simply, nonprofits are big business and even have in some instances big “profits”! Some sources insist that this is the fastest growing sector of the U.S. economy. Often referred to variously as the “third sector,” the “independent sector,” the “voluntary sector,” the “tax-exempt sector” and the “civil society center,” nonprofits include a perplexingly diverse set of over 1.5 million organizations, a million of which are “charities.” They employ ten million workers and countless volunteers adding up to a trillion dollars a year in economic impact. They are collectively a major player in society, as one author put it, “touching virtually all aspect of our lives.”
It is not a matched set. It includes the famous and the obscure, even in the narrower set of charitable 501(c)(3) entities. Alongside the Ford Foundation, Red Cross, Amnesty International,and Harvard are the Sassafras Foundation, the International Society of Talking Clock Collectors, and the Renegade Rollergirls of Oregon, not to mention the diversity of lodges and fraternal organizations. Even the NFL is a 501(c)(6) organization.
The tax code provides for more than 25 classifications of 501(c) organizations ranging from those giving relief to the poor to hospitals, schools, television and radio stations, and animal protection organizations. 501(c)(4) organizations are highly engaged in political campaigns and lobbying. Professional and trade associations such as chambers of commerce are also typically structured as nonprofit entities.
They include a few big players such as the Bill and Belinda Gates Foundation with an endowment of $38 billion. Some universities have endowments in the tens of billions of dollars. Amnesty International, Rotary International, the United Way, Habitat for Humanity, World Vision, Catholic Charities, Goodwill Industries, the NRA, and the Red Cross all pack a financial, social, and political punch. Other types are major parties in our national culture such as hospitals, churches, civic organizations, and political advocacy groups. Some are global, but most are local.
Their role goes beyond the common notions of charitable relief. John Gardner, founding chair of Independent Sector, notes approvingly that nonprofits provide a “hospitable environment for inno-vation,” reflect the vast and rich diversity of American public life, provide a home for “non-majoritarian impulses,” and “preserve individual initiative and responsibility” and a “citizen activism” that has become a global phenomenon.
For all the positive contributions of nonprofits, there is an “underside” to their richness and productivity. Scholars, social critics, and congressional hearings have been concerned with issues of excessive power wielded by private foundations. They have criticized the “gaudy compensation packages” for some nonprofit executives, lamented the diversion of charitable assets, been troubled by “creeping commercialism,” and noted too many insider deals, shoddy oversight, and lack of accountability in addition to some highly publicized instances of outright fraud and corruption. Recently some nonprofits have been traced to terrorist interests. Recent complaints have focused on the alleged “gradual commercialization” of nonprofit hospitals. This recognition of serious issues in the nonprofit world has resulted in governmental scrutiny, proposed sweeping reforms and recommended best practices for tax-exempt organizations, and attracted the attention of the IRS and Congress.
This complex reality encourages law schools to address aspects and issues of nonprofit law. One reason is certainly because of its substantial importance in our society. It not only offers a niche market for lawyers, but also addresses a need for most lawyers to have a sense of the landscape, including the land mines, in order to effectively address related legal areas. A second factor is that because lawyers are often called on to serve on nonprofit boards or advisory groups or as officers of such entities, they need to bring an informed legal awareness to those tasks. Lawyers are frequently active as volunteers, members, and advocates for a wide range of civil, political, religious, charitable, and service organizations in their own communities.
Sorting our priorities in the legal education curriculum is a daunting task with each specialty and subspecialty clamoring for attention, courses, and faculty. Nonprofit law classes are almost never required, but offered as electives, and rarely attract substantial numbers of students or faculty scholarship. Nonprofit law remains an orphan. But a course in nonprofit law, including that at Campbell Law School, offers a highly practical and intensive overview of law, policy, and operational aspects of nonprofit organizations and the parties intertwined with them: officers, directors, donors, volunteers, state and federal agencies, regulators, and the public interest.
A nonprofit law class covers many divergent areas of law and policy: state and federal law, especially tax regulations, contracts, fiduciary and trust principles, financial regulations, and taxation issues for the organization and donors. It includes the detailed and highly individualized issues of formation and governance for nonprofits, and also the broad arenas of accountability, ethics, and transparency.
Several issues are particularly persistent: (1) inadequate accountability of marginally engaged directors who breach their duties of care and loyalty, (2) frequent lack of effective oversight by state and federal offices to assure compliance with nonprofit purposes and address breaches of legal and ethical duties, (3) balancing the advantages of flexibility and creativity with the risks of misfeasance and avoidance of the fundamental obligations of nonprofits, (4) the legal, political, and policy challenges raised by nonprofits that seem to mirror commercial interests and operations, including related nonprofit and profit aspects as in some health care contexts, (5) the misuse of nonprofit status for personal gain either with original deceptive intent or by diversions from its initial legitimate purposes.
In addition to case analysis, students are exposed to a wide range of resources available within the nonprofit world to assist new and existing organizations in areas of effective management, best practices in accounting and accountability, board training, leadership development, financial planning, IRS compliance, and mission development. Students working in teams or singly prepare reports on specific issues and are required to engage with one or more nonprofits and study their structure, management, and operations.
Some students also gain appreciation for the work and character of nonprofits by volunteer activities and through externships. In recent years, for example, Campbell students have had such opportunities with nonprofits as varied as the North Carolina Coalition Against Domestic Violence, the Land Loss Prevention Project, the Center for Child and Health Services, the North Carolina Board of Pharmacy, the North Carolina Hospital Association, the North Carolina League of Municipalities, and the Christian Action League.
Nonprofit Law may be an orphan – but one that is challenging, engaging, and deeply imbedded in the fabric of our institutions and communities. It deserves more attention and focus within both legal education and our professional development. •
Buzzard is Professor of Law at the Campbell University School of Law.
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