The Nonprofit Sector and the New State Activism

The burgeoning field of nonprofit and philanthropic law has a new and superb history in Norman Silber’s pathbreaking A Corporate Form of Freedom: The Emergence of the Nonprofit Sector. In confronting “the history of efforts to control the creation and permissible purposes for nonprofit corporations by states, and … the relocation of these efforts to the Internal Revenue Service” (p. 5), Professor Silber effectively deliniates the rich history of our ambiguous, often conflicted attempts to regulate the American nonprofit sector, and points clearly to the ways in which history influences the current complexities of state regulation. From a discredited era of state intrusion into the purposes and goals of nonprofit formation, a history admirably analyzed by Silber’s volume, we have now turned to an inconsistent pattern of several decades of post-registration state monitoring of the nonprofit sector – in some jurisdictions a virtual ceding of nonprofit monitoring to the Internal Revenue Service, and in others a new state activism well worth exploring. The struggle to effectively balance oversight with freedom in the regulation of the American nonprofit sector is a key theme of Silber’s work. This is, of course, a long-standing problem in American law. Because of continuing concerns for the efficacy of IRS oversight, limitations on the right of citizens to have standing to sue upon misconduct by nonprofits, and a virtual absence of effective means of self-regulation in the non-profit sector, states – led by New York – have at times aggressively exercised their powers to monitor, oversee and regulate the nonprofit sector. At least one key state appears to be doing so now. Given the failure, or at least the limitations, of other oversight means it is perhaps inevitable that the states should step into this fray. That new state activism is well worth exploring in its own right – but it is also not without significant problems, inconsistencies, and limitations, as this Review indicates. The time has perhaps now arrived to put the new state activism into an analystical framework that can help determine its utility in the regulation of the rapidly growing and now considerably more complex American nonprofit sector.