COMMON CHARACTERISTICS IN TAX LITIGATION AFFECTING NONPROFITS: CLUES TO FUNDAMENTAL RESPONSES TO LEGAL AND ETHICAL CRISIS (LITIGATION)

There is general agreement in the nonprofit literature that the nonprofit sector is in a state of legal and ethical crisis. The numerous ethical breaches reported in the press are indicative of significant problems; problems having wide-reaching public policy implications.; These ethical problems are leading to greater governmental scrutiny and intervention. Thus, nonprofits need to identify opportunities for improvements in tax policy, management and governance to prevent such intervention from adversely affecting service delivery. In order to identify appropriate responses, historical data about nonprofit behavior is needed.; Analysis of tax litigation affecting nonprofits over the past 40 years provides substantial data about behavior patterns and suggests possible responses. This study enhances our understanding of the legal and ethical implications of management decisions and surfaces what public policy (tax policy) initiatives, enforcement mechanisms or professional standards might be most effective in dealing with illegal behaviors.; This study adds to the growing body of research on nonprofit management and governance by providing a typology of illegal behaviors evidenced in the case law and a comparison of behavior patterns to the existing policy and legislation. It was hypothesized that the present exemption statutes and other legal, theoretical, professional and public policy criteria were insufficient to adequately prevent or punish certain illegal and unethical behaviors.; An analysis of every exemption case decided in the last 40 years provided substantial information about illegal and unethical behaviors. Numerous patterns were identified suggesting new or different tax policy, regulatory responses, enforcement mechanisms and/or ethical standards are necessary. Many original recommendations were developed for new management strategies, regulatory schemes and enforcement mechanisms. These findings were generalized for noncharitable nonprofits as well and proposed legislation was reviewed and found to be lacking certain essential elements.