The Case for For-Profit Charities

Nonprofit firms may earn profits, but they may not distribute them to any affiliated persons. If a nonprofit firm has a “charitable” purpose under § 501(c)(3) of the tax code, the firm receives numerous tax advantages. For example, donors may deduct their donations to the firm from their taxable personal income. For-profit firms may distribute profits to affiliated persons, but receives no tax advantages for engaging in “charitable” activities. We argue that the law should not link tax benefits to corporate form in this way. There may be good arguments for recognizing the nonprofit form and good arguments for providing tax subsidies to charitable firms, but there is no good argument for making those tax subsidies available only to charities that adopt the nonprofit form. Indeed, there are reasons to think the ability to distribute profits to affiliates may both increase and improve charitable activities. Moreover, the extensive charitable activities of many for-profit commercial firms suggest that in the absence of discriminatory tax treatment for-profit charities would flourish. Therefore, the current tax benefits offered to charitable nonprofits should be extended to for-profit charities, and to the charitable activities of for-profit commercial firms.