The federal tax code erects and enforces a firm border between forprofit and nonprofit organizations. Multiple provisions of the code monitor the boundaries of the tax-exempt, or nonprofit, sector to ensure that no nonprofit organization slips across the border to become a forprofit organization. Other code provisions restrict entry into the taxexempt sector by for-profit organizations. Despite serious legal impediments, however, organizations on both sides of the boundary have increasingly found means by which to cross the border. Arrangements such as corporate social responsibility, for-profit philanthropy, and social enterprise illustrate this recent trend. Through these arrangements, forprofit organizations are beginning to embrace social goals, while nonprofit organizations have started to use methods more traditionally associated with efficient business organizations. Research in organizational sociology provides tools by which to understand these new cross-border developments. This body of research has shown that organizational sectors, or fields, evolve according to well-understood patterns, whose significance tax scholars have overlooked. Furthermore, federal tax law has failed to recognize and to make productive use of these organizational trends. This Article proposes that tax law should acknowledge the cross-sector movements of for-profit and nonprofit organizations, as well as the major advantages that these movements can produce. Tax law could then harness border-crossing activity to create social benefits. To achieve this result, federal tax law should loosen the for-profit/nonprofit boundary. This change would enable the tax code to encourage cross-sector "collaborations" between for-profit and nonprofit organizations. This change to the tax law is one that Congress and the Internal Revenue Service could now accomplish through several basic measures. These measures would make it possible for federal tax law to realize the large potential for social good that lies at the changing forprofit/ nonprofit border.
Susannah C. Tahk,
Crossing the Tax Code's For-Profit/Nonprofit Border,
Dick. L. Rev.
Available at: https://ideas.dickinsonlaw.psu.edu/dlra/vol118/iss3/2