The Exemption of Nonprofit Organizations from Federal Income Taxation

Abstract

The practice of exempting charitable and religious organizations, mutual benefit groups, and a variety of other nonprofit associations from federal income taxation has persisted, with surprising consistency despite minor variations in coverage, for many years. With roots reaching back to the British Statute of Charitable Uses of 1601 and to early state constitutional provisions,' most of today's exemptions from income taxation date from the Revenue Act of 1894 and were reenacted in the corporation income tax of 1909 and the Revenue Act of 1913. But neither upon their initial enactment nor during the ensuing decades have these exemptions elicited more than cursory legislative explanation, save for matters of technical detail. Commentators have been almost equally silent. These decades of benign neglect may have reflected a conviction that the wisdom of tax exemption was self-evident, that the basic policy was politically invulnerable to change, or that taxation in this area would bring in little revenue. But there have been several departures from this legislative tolerance in recent years. This change in attitude, in our view, amply warrants a re-examination of a policy long accepted almost without question.