Chaired by liberal Democrat Wright Patman of Texas, the U.S. House Select Committee on Small Business investigated tax-exempt, charitable foundations beginning in 1955. The Patman Committee, as it’s known, issued a report in two installments in late 1962 and 1963.

Midland, Mich., tax attorney John E. Riecker wrote about the Patman Committee’s work and its findings for the Michigan Law Review in 1964. Riecker was a longtime member of the board and supporter of the Mackinac Center for Public Policy.

He began the article, “Foundations and the Patman Committee Report”—an excerpt from which, with footnotes omitted, is below—by quoting Patman: “The object of our study is to determine whether legislation is needed in order to provide effective supervisory controls over tax-exempt foundations and protect the public.”

With the above words, written at the wintry beginning of 1963, Congressman Wright Patman of Texas launched the first installment of a report to the Select Committee on Small Business of the United States House of Representatives. The report, despite its blunt invective and frequent emotionalism, is very likely to have far-reaching practical, if not legal, consequences in the laws and ethics relating to tax-exempt foundations and charitable trusts. Congressman Patman had much to allege with respect to his Committee’s accumulated evidence of foundation dominance of small corporate business, as well as foundation abuse of the sanctuary of income tax exemption. …

Chairman Patman went on to recommend an immediate moratorium on the granting of tax-exempt privileges to foundations. In an omnibus indictment of some of the practices of the 534 foundations investigated by the Committee, Congressman Patman charged that a concentration of economic power, coupled with laxness of Internal Revenue Service enforcement of certain United States Treasury regulations pertaining to foundations, had culminated in “possible exploitation of the people’s respect and admiration for charitable acts and gifts.” …

While startling in its content, the Patman Report’s review of the activities of tax-exempt organizations in the 1950’s and early 1960’s is only the latest in a long series of inquiries into private charity which have dotted the historical landscape ever since the English Statute of Charitable Uses (1601). Indeed, just a decade or so ago, intensive congressional investigation of foundation activities led to the most drastic change in the applicable tax law in over three hundred years: the Revenue Act of 1950. … [The Patman Committee Report’s] allegations and findings are provocative of the most careful notice by tax lawyers. The gauntlet is thrown down to foundation trustees and directors, to corporation stockholder-donors, and to charitable donees all over the country. All persons critical of the Report have been challenged to justify both the legal and the socio-political role of the modern, tax-exempt charitable corporation.

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