Editors’ Note: Ellen Aprill introduces her research on governmental and semi-governmental federal charitable entities. A version of this post appeared on Notice & Comment, a blog from the Yale Journal on Regulation and ABA Section of Administrative Law & Regulatory Practice.

Few American taxpayers know that they can make tax-deductible charitable contributions of cash and property to the federal government itself. If they do so, however, they cannot earmark these donations; by law, these gifts must go to reduction of the federal budget. At the same time, taxpayers can make deductible donations directly to federal agencies, including gifts limited to specified purposes, but only if the agency has statutory authority to receive them. The organizers of the GoFundMe campaign to support the Trump administration’s effort to build a wall on the border with Mexico, for example, learned to their dismay that the funds raised could not be given to the Department of Homeland Security without Congressional action to authorize acceptance.

The Internal Revenue Code, as is well-known, provides a deduction from income tax for charitable contributions under §170(c) for taxpayers who itemize deductions. Most discussions of the charitable contribution deduction take into account only gifts to organizations exempt from federal income tax under §501(c)(3), which, in fact, are often referred to as “charities.” Section 170(c), however, in fact reaches more broadly. It permits the charitable contribution deduction for gifts to government—whether federal, state or political subdivisions of states—as well as for gifts to certain tax-exempt veterans’ organizations, to certain activities of lodge systems, and even to tax-exempt cemetery companies, all of which are exempt under different subsections of §501(c). Under this §170 definition, a wide variety of federal charitable entities exist, ranging, as the rest of this article discusses, from the federal government itself, through federal agencies and Congressionally-established §501(c) organizations, to otherwise private tax-exempt nonprofits that have been granted honorific federal charters in Title 36 of the U.S. Code.

I recently posted on SSRN the draft of an article that examines all of these types of entities and the issues they raise under tax law, nonprofit law, constitutional law and administrative law. The ability of federal agencies to accept charitable contributions undermines the oversight accomplished through the Constitutionally-mandated appropriations process. Congressionally-established nonprofit tax-exempt organizations enjoy flexibility as to fundraising, investment, and  spending that government agencies lack. At the same time, they avoid the accountability that various federal statutes impose on government agencies, on the one hand, and that state nonprofit laws accomplish for private nonprofit organizations, on the other. Yet, these Congressionally-established nonprofits retain significant governmental ties, such as service by government officials on their boards and reliance on appropriations. These practices produce at best a precarious balance between the governmental and non-governmental. Below, I give examples of the entities and the issues my full article considers.

The Miscellaneous Receipts Act limits the sources of funding for federal government agencies.  It provides that “an official or agent of the Government receiving money for the Government from any source shall deposit the money in the Treasury as soon as practicable without deduction for any charge or claim.” Despite the seemingly absolute language of the Constitution’s Appropriations Clause and the Miscellaneous Receipts Act, government agencies are permitted to accept for their own uses gifts of money or other property when – and to the extent – they are given explicit statutory authority. Examples of government agencies with such authority include the Department of State, the Library of Congress, the Department of Health and Human Services, and the Department of Justice. As Kate Stith wrote more than 30 years ago, when an executive agency is prepared to accept donations, “Congress loses effective control over the contours of authorized government activity.”

The Smithsonian Institution is the first and arguably the most prominent of the numerous Congressionally-created tax-exempt nonprofits. In 1829. an Englishman named James Smithson – who had never visited or corresponded with anyone in this country – bequeathed a large amount of money “to found at Washington, under the name of the Smithsonian Institution, an Establishment for the increase & diffusion of knowledge among men.” Today, the Smithsonian describes itself as “the world’s largest museum, education, and research complex,” with 21 museums, the National Zoo, and nine research facilities. In 2007 it engaged an independent review commission to investigate widespread reports of inappropriate behavior by its then Secretary. The commission identified failures of governance and management, faulting the lack of federal common law regarding board duties and obligations. It questioned the ability of the Chief Justice and the Vice President to devote the hours required to discharge their fiduciary duties as Smithsonian board members. It called for the Smithsonian, which is funded primarily by appropriations, to adopt procedures for transparency, disclosure, and compensation consistent with statutes governing federal agencies. The Smithsonian accepted a number, but not all, of these recommendations. In particular, no change to its board structure has taken place.

In a section likely to be of particular interest to readers of HistPhil, the piece reviews the history of Congress establishing what we today would call private foundations. It points out that Congress chartered two Carnegie-funded private foundations – the Carnegie Institution of Washington and the Carnegie Foundation for the Advancement of Learning – as well as Rockefeller’s General Education Board. It retells the story of Congress ultimately refusing to charter the Rockefeller Foundation in 1913. It argues, however, that, although not predictable at the time, experience since then suggests that state chartering has resulted in greater oversight of private foundations than federal chartering would have provided.

The article also describes how sometimes Congress authorizes a federal agency to accept charitable gifts and also establishes a nonprofit tax-exempt entity to fundraise for it. The Center for Disease Control, for example, is eligible to receive deductible contributions. Nonetheless, Congress has also created the National Foundation for the Centers for Disease Control and Prevention (CDC Foundation). On its webpage the CDC Foundation describes itself as “an independent nonprofit and the sole entity created by Congress to mobilize philanthropic and private-sector resources to support the Centers for Disease Control and Prevention’s critical health protection work.” The CDC Foundation’s crowdfunding site for covid relief raised more than $51 million, one of the most successful charitable crowdfunding efforts to date. Its efforts thus increased capacity to fight the pandemic. But these relationships between government agencies and governmental nonprofits risk at least the appearance of conflict of interest and undue influence. Professor Jon Michaels has detailed giving by Genentech to the CDC Foundation “to support the CDC’s campaign to encourage greater testing and treatment for viral hepatitis,” pointing out that Genentech, a maker of testing kits and treatment for hepatitis, was a potential beneficiary of the CDC’s campaign.

Moreover, Subtitle II, Part B of Title 36 of the U.S. Code lists 94 patriotic and national nonprofit organizations with Congressional charters (“Title 36 corporations”). They include such well-known organizations as the Boy Scouts of America, the Girl Scouts of America, and the American Olympics Committee. Others, such as the Fleet Reserve Association or the Agricultural Hall of Fame, are less well known. Somewhat more than half of these Title 36 corporations were created by Congress; the rest have been awarded Congressional charters long after their formation as private tax-exempt nonprofit organizations. As the CRS has explained, this bestowal of honorary charters can erroneously imply Congressional endorsement and oversight of these groups.

Examination of all these governmental and semi-governmental entities confirms Anne Joseph O’Connell’s observation that in the case of “bureaucracies at the border,” of which these groups form  a subset, “efficiency may not always trump accountability.” Thus, my article makes specific recommendations to increase accountability of both government agencies and Congressionally-established nonprofit entities. For example, it urges Congress to undertake a comprehensive review of agency gift acceptance policies and to curtail the widespread practice of appointing government officials to nonprofit boards. More fundamentally, it calls for acknowledgment of these hybrid entities. It argues for viewing government and charity as resting on a continuum rather than each floating in its own untethered conceptual space. This approach clarifies our understanding of government, the nonprofit sector, and the relationship between them. Use of a continuum reminds us that our nation faces a choice between the private and public – or some mix of the two – in funding activities in which both government and charitable nonprofits engage.

-Ellen Aprill

Ellen P. Aprill is John E. Anderson Chair in Tax Law at Loyola Law School. Before coming to Loyola in 1989, Aprill served for two years in the Office of Tax Policy in the United States Department of the Treasury, and practiced for several years with the law firm of Munger, Tolles & Olson in Los Angeles.