Paul Valentine


In the United States there is a deeply held conviction “that taxpayers who donate to charity should generally not be subject to the same income tax liability as similarly situated taxpayers.” This innate sense about the Internal Revenue Code’s § 170, otherwise known as the charitable deduction, resonates with Americans’ sense of fairness and creates strong barriers to curtailing its function.

This same sense of fairness is tied to the perceived effects of the charitable deduction. Yet, how “charitable” is the charitable deduction, and how charitable do we expect it to be? This Article argues that the discrepancy between the popular meaning of the word “charitable” and the legal meaning has distorted both the perception of, and the political justifications for, the provision.

The charitable deduction’s definitional discrepancy is perhaps not immediately apparent, because often the legal and layperson’s definitions of the word are the same. However, on occasion, the legal and popular definitions vary. One such example is the difference between the Tax Code’s and layperson’s definition of the word “charitable.” Although the legal definition does cover direct relief of the poor, it also has a much wider mandate, including advancing religion, science and education, constructing public buildings, lessening neighborhood tensions, and other public benefit purposes. These types of causes may provide a service to society, but they are neither charitable under the popular meaning of the word nor would most individuals consider organizations that provide such services a charity.

This broad legal definition of “charitable” has created a misperception in the American psyche of where the benefits of the charitable deduction are allocated. The very use of the word “charitable” in the statutory language creates a powerful association in most non-lawyers that ties the deduction to churches and poverty relief organizations, when in reality this is only a small portion of the tax subsidy. Further, the emotive rhetoric used by politicians when attacking proposed amendments curtailing the charitable deduction is grossly out of sync with the primary beneficiaries of the provision.

This Article argues that that the definitional gap between the legal and lay definition of “charitable” impedes meaningful discussion of amendments to the charitable deduction. This has led to mistaken or underestimated assumptions about the allocation of the subsidy. A clearer understanding of where the § 170 subsidy is allocated would allow politicians and the public to more critically examine this tax expenditure. In light of this confusion, the Article proposes Congress should rename § 170 the “qualified donation deduction”—a term that would not create the same poverty relief associations as the charitable deduction misnomer.

This Article is structured as follows: Part II looks at how Congress and commentators justify the charitable contribution, examining the historical, theoretical and political justifications of the section. Part III examines the data associated with the charitable deduction and calculates the percentage of the charitable deduction expenditure that is allocated to direct poverty relief. Part IV proposes that Congress rename the charitable deduction to break the association between the charitable deduction and poverty relief. This section also addresses the main critiques of this proposal. Part V concludes.