The Federalization of the Duty of Loyalty Governing Charity Fiduciaries Under United States Tax Law
50 Pages Posted: 28 Jun 2013
Date Written: June 26, 2013
Abstract
Notwithstanding the historically significant role of the states in regulating charities, the duty of loyalty owed by trustees of charitable trusts and directors of charitable corporations under state law is now largely eclipsed by federal tax laws that effectively regulate fiduciary behavior. This Article describes, analyzes, and evaluates this federalization of the duty of loyalty embodied in the federal tax regime. After briefly summarizing the nature of the duty of loyalty under state law, this Article discusses the federalization of the duty of loyalty inherent in (1) fundamental requirements for obtaining and maintaining exemption from federal income taxation as a charitable entity, and (2) the federal excise tax regime governing charities. This Article further explains that numerous disparate standards and rules pertaining to the duty of loyalty emerge from the federal excise tax regime, and then identifies and articulates important assumptions that appear to underlie the federalization of the duty of loyalty under United States tax law. This Article next assesses the current federalized duty of loyalty.
Keywords: Duty of loyalty, section 501(c)(3), charity, charitable trusts, nonprofit corporations, private foundation, supporting organization, self-dealing, excise tax, fiduciary duties
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