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What is a “public charity?”

I recently found this article written by two lawyers about the dual federal and state regulatory jurisdiction over charities, and how charity regulators and the Internal Revenue Service share information to regulate nonprofits.

The article asserts, “Public charities, created to benefit the public, have always been subject to state and federal regulation.” I don’t think that claim is true. I don’t recall Chief Justice John Marshall making that observation in the 1819 case Trustees of Dartmouth College v. Woodward, which pre-dated the IRS. Chief Justice Marshall, as I recall, also made the distinction about charities whose purposes may affect or benefit the public, but that didn’t make them “public charities.”

Early in the article the authors also makes this observation:

State governments have concurrent jurisdiction with the federal government with respect to the oversight of, and regulatory control over, charities. After all, nearly every U.S. charity is a creation of state law, formed under a specific state’s trust, unincorporated association, or nonprofit corporation law. In other words, most charities would not legally exist but for state law.

So if I understand the authors correctly, the fact that a charity is legally organized under state law authorizes concurrent federal and state jurisdiction over charities. Or, perhaps, the fact that a charity is organized under state law gives states certain powers to regulate charities in ways that states may not regulate other entities organized under state law. I am unclear of the authors’ meaning, but that paragraph troubles me.

Wouldn’t the federal government and state governments have essentially the same level of concurrent jurisdiction over law firms organized under state law as charities organized under state law? Don’t the private services law firms render affect the public? When a law firm negotiates a deal to erect a “public” building, that seems to affect the public interest. Lawyers go to “public” court to defend clients, conduct civil litigation often with “public” implications, etc.

Would state attorneys general be able to invade law firms the way they do charities simply because law firms are organized under state law? I’d like to see them try it just to see the response from the law firms. Boy oh boy, we’d see pleadings flying out of those law firms asserting rights, seeking injunctive relief and claiming damages.

Most law firms would not legally exist but for state law, yet few if any lawyers or law firms I know would concede such jurisdiction over themselves as the authors concede for charities.

This may sound too legal and theoretical, I know. My point, though, is while the law governing nonprofits is complex, it’s appropriate to question even so-called legal experts. Sometimes they have a bias in favor of complexity of the law and more power for government, and perhaps that doesn’t fully protect your rights. You might want to ask them, if the government tried to do this to your law firm, how would you respond?

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