ABSTRACT
Foundations must shape their activities to conform to the tax laws, but tax laws are also subject to change if legislators become dissatisfied with foundation activities. Tax laws affect non-profit foundations in two ways. First, they influence the donations that are made into foundations. Second, they influence the activities of foundations that must comply with the tax laws in order to maintain their tax-preferred status. The influence of the tax code on the operations of foundations is probably more substantial, however, both directly and indirectly, than on the amount of resources going into foundations. Tax expenditures make good fiscal sense if the tax revenues foregone to promote the public purpose are less than the direct expenditures the government would have needed to make to accomplish the same ends. Non-profit foundations engage in activities for public purposes, but the concept of public purpose is vague, and not everybody will necessarily agree on when public purposes are being served.
