When asked to comment upon the various versions of health care reform bills that will soon be voted upon by Congress, I recalled quote by Russell Long, then Chair of the Finance Committee[1]:

         “When the Finance Committee began public hearings on the Tax Reform Act of 1969 I referred to the bill as ‘368 pages of bewildering complexity.’  It is now 585 pages  . . . .”

 This week I turn my blogticle to expiscate the eristic historical context of the tax advantaged treatment enjoyed by charitable institutions.  Why charitable institutions?  In the United States, charitable institutions are known as tax exempt ‘non-profits’ though some are profitable in the accounting sense.  By example, many hospitals, though profitable and even lucripetous, are granted by the federal and state revenue authorities tax exempt status as charities.  However, Congress has pretermitted any issues, and thus leverage, associated with the tax exempt status of health care providers in the various health care reform bills.

 England’s Historical Legislative Treatment of Charitable Institutions

In order to finance his reign, Henry VIII seized the Catholic Church’s and universities’ lands and with parliament enacted The Statute of Uses in 1536 and The Chantries Act in 1545.[2]  The Statute of Uses, in enacting the rule against perpetuities, terminated the situation that most English land, in order to escape feudal dues, was held from family generation to generation in dynastical, perpetual trusts owned by the Church.[3]  The Chantries Act provided for escheat of colleges’ possessions.[4]  The government established as an organ of itself with tax-exempt status by its sovereign nature the Church of England, replacing the Catholic Church.[5]

See-sawing in favor of charitable institutions, under Elizabeth I in 1597, parliament enacted a charitable corporation act that exempted specified institutions from government charges and the requirement of government consent when formed for the following purposes:

        to erect, found, and establish, one or more hospitals, maison de Dieu, abiding places, or houses of correction, . . . as well as for the finding, sustentation, and relief of the maimed, poor, needy or impotent people, as to set the poor to work, to have continuance forever, and from time to time place therein such head and members, and such number of poor as to him, his heirs and assigns should seem convenient.[6]

Furthering Elizabeth I’s charitable incorporation statute by suppressing the application of Henry’s Statute of Uses and its rule against perpetuities, four years later Parliament enacted the Statute of Charitable Uses, 1601, allowing real property transfers to perpetual charitable trusts.[7]  The Statute provided for exemption from the Statute of Uses for a transfer to a charity that provided:

        relief of aged, impotent and poor people, . . . maintenance of sick and maimed soldiers, schools of learning, free schools, and scholars in universities, . . . repair of bridges, ports, havens, causeways, churches, sea-banks and highways, . . . education and preferment of orphans, . . . relief, stock or maintenance of houses of correction, . . . marriages of poor maids, . . . aid and help of young tradesman, handicraftsman and persons decayed, relief of prisoners, . . . aid of any poor inhabitants.[8]

However, during the late sixteenth century and seventeenth century, the Crown often piecemeal interfered with religious charitable trusts, either voiding the trust or employing cy pres to divert the trust assets to the Crown’s favored religion.[9]  Charitable institutions once again falling out of the Crown’s blanket favor, two hundred years after and in the same vein as the Statute of Uses, Parliament revived a specific anti-charity statute, The Mortmain Act, in 1736.[10]  The Mortmain Act of 1736 invalidated real property transfers to any charity mortis causa as well as inter vivos transfers made one year or less before death.[11]  Though this statute limiting the funding of charities remained English law until The Charities Act, 1960, Parliament modified it in 1891 to allow for exceptions for devised property not to be used for investment, thus endowment, purposes.[12]

Prof. William Byrnes (http://www.llmprogram.org) 

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[1] 115 Cong. Rec. S14,944 (1969) (statement of The Hon. Russell B. Long), reprinted in 1969 U.S.C.C.A.N. 2391, 2490.

[2] Evelyn Brody, Charitable Endowments and the Democratization of Dynasty, 39 Ariz. L. Rev. 873, 901, 909-10, 911-13 (1997) Henry VIII was by no means the first king to dissolve monasteries. 

[3] Brody at 901.

[4] Brody at 912-13.

[5] See Christine Roemhildt Moore, Comment, Religious Tax Exemption and The “Charitable Scrutiny” Test, 15 Reg. U. L. Rev. 295, 298-99 (2002-2003).

[6] See James J. Fishman, The Development of Nonprofit Corporation Law and an Agenda for Reform, 34 Emory L.J. 617, n.65 (1985).

[7] Lars G. Gustafsson, The Definition of “Charitable” for Federal Income Tax Purposes: Defrocking the Old and Suggesting Some New Fundamental Assumptions, 33 Hous. L. Rev. 587, 605 (1996) (citing An Act to redress the Mis-employment of Lands, Goods, and Stocks of Money heretofore given to Charitable Uses, 1601, 43 Eliz., ch. 4 (Eng.)).

[8] Oliver A. Houck, With Charity For All, 93 Yale L.J. 1415, 1422 (1984) (quoting Charitable Uses Act, 1601, 43 Eliz., ch. 4).

[9] See Norman Alvey, From Charity to Oxfam: A Short History of Charity Legislation 10-11 (1995).

[10] See Gustafsson at 606, 649 n.62 (noting that Mortmain statutes had previously been enacted in England but the Statute of Charitable Uses substantively repealed them); see also Brody, at 903 (noting that Parliament’s sentiments for legislating the statute are uncertain, but may have been due to anticlerical feelings).

[11] Alvey at 11.

[12] Brody at 905 n.147 (noting that the statute was modified in 1891 to allow either the court or the Charity Commissioners to grant exception for a mortis causa real property transfer to charity as long as the property was to be used for charitable activity rather than for investment purposes).