Title Details

About the Author xvii

Preface xix

Book Citations xxiii

PART ONE INTRODUCTION TO THE LAW OF TAX-EXEMPT ORGANIZATIONS 1

1 Definition of and Rationales for Tax-Exempt Organizations 3

*§ 1.2 Definition of Tax-Exempt Organization 3

§ 1.7 Freedom of Association Doctrine 4

2 Overview of Nonprofit Sector and Tax-Exempt Organizations 5

§ 2.1 Profile of Nonprofit Sector 5

§ 2.2 Organization of IRS 6

*(b) Tax-Exempt and Government Entities Division 6

PART TWO FUNDAMENTALS OF THE LAW OF TAX-EXEMPT ORGANIZATIONS 7

3 Source, Advantages, and Disadvantages of Tax Exemption 9

*§ 3.2 Recognition of Tax Exemption 9

§ 3.2A Recognition of Public Charity, Private Foundation Status (New) 10

4 Organizational, Operational, and Related Tests and Doctrines 11

*§ 4.1 Organizational, Operational, and Related Tests and Doctrines 11

§ 4.3 Organizational Test 12

*(a) Statement of Purposes 12

(b) Dissolution Requirements 12

*(e) What Test Does Not Encompass (New) 12

§ 4.4 Primary Purpose Test 14

§ 4.5 Operational Test 14

(a) Basic Rules 14

*(a-1) Quantification of Activities (New) 14

(c) Aggregate Principle 16

§ 4.6 Exclusively Standard 16

§ 4.7 Commensurate Test 16

*(a) Application of Commensurate Test 16

*(b) Charitable Spending Initiative 17

*§ 4.7A Consideration of Organizations’ Names (New) 17

§ 4.8 State Action Doctrine 19

(a) Doctrine in General 19

(b) Doctrine as Applied to Social Clubs 22

(c) Doctrine and Other Exempt Organizations (New) 23

(d) Statutory Law 25

§ 4.10 Commerciality Doctrine 25

(a) Origin of Doctrine 25

*(b) Contemporary Application of Doctrine 25

(c) Contemporary Perspective on Doctrine 26

§ 4.11 Social Enterprise Developments (New) 26

(a) Concept of Social Enterprise 27

(b) Program-Related Investments 28

(c) Low-Profit Limited Liability Companies 28

(d) B Corporations 29

(e) Benefit Corporations 29

(f) Flexible Purpose Corporations 29

5 Nonprofit Governance 31

§ 5.7 IRS and Governance 31

(b) IRS Ruling Policy 32

*(f) Governance Check Sheet 34

PART THREE TAX-EXEMPT CHARITABLE ORGANIZATIONS 35

6 Concept of Charitable 37

§ 6.2 Public Policy Doctrine 37

*(a) General Principles 37

(c) Gender-Based Discrimination 37

(d) Other Forms of Discrimination 38

(e) Affirmative Action Principles 38

§ 6.3 Charitable Concepts 38

*(a) Requirement of Charitable Class 38

*(i) Illegal Activities 39

(j) Tax Exemption Does Not Create Contract 40

(m) Tax Exemption Does Not Create Charitable Trust 40

7 Charitable Organizations 41

*§ 7.2 Relief of Distressed 41

(a) General Principles 41

§ 7.3 Credit Counseling 42

(d) Statutory Criteria for Exemption 42

§ 7.4 Provision of Housing 42

*§ 7.5 Down Payment Assistance 43

§ 7.6 Promotion of Health 43

*(a) Hospitals 43

*(b) Additional Statutory Requirements for Hospitals 44

(i) Fitness Centers 45

(j) Other Health Care Organizations 45

*(k) Regional Health Information Organizations 45

(l) Health Insurance Exchanges (New) 46

(m) Accountable Care Organizations (New) 48

§ 7.7 Lessening Burdens of Government 53

*§ 7.11 Promotion of Social Welfare 53

*§ 7.13A Fundraising Organizations (New) 53

(a) General Principles 53

(b) Application of Commensurate Test 55

(c) Other Exemption Issues 56

§ 7.15 Other Categories of Charity 57

*(a) Environmental Protection 57

(d) Public Interest Law 58

(e) Local Economic Development 59

8 Educational Organizations 61

§ 8.1 Federal Tax Law Definition of Educational 61

§ 8.2 Education Contrasted with Propaganda 61

§ 8.3 Educational Institutions 61

*(a) Schools, Colleges, and Universities 61

§ 8.4 Instruction of Individuals 62

9 Scientific Organizations 63

§ 9.1 Federal Tax Laws Definition of Science 63

§ 9.2 Concept of Research 63

10 Religious Organizations 65

§ 10.1 Constitutional Law Framework 65

(a) General Constitution Law Principles 65

*(b) Constitutional Law and Tax Exemption 65

§ 10.3 Churches and Similar Institutions 66

(a) General Principles 66

*(b) Associational Test 66

(c) Perspective 67

§ 10.5A Mission Societies (New) 68

§ 10.7 Apostolic Organizations 68

11 Other Charitable Organizations 69

*§ 11.2 Amateur Sports Organizations 69

§ 11.7 Literary Organizations 69

§ 11.8 Donor-Advised Funds 70

(a) Donor-Advised Fund Basics 70

*(b) Statutory Criteria 70

(c) Treasury Department Report (New) 70

(d) Congressional Research Service Report (New) 72

12 Public Charities and Private Foundations 75

§ 12.3 Categories of Public Charities 75

*(a) Institutions 75

*(b) Publicly Supported Charities 75

*(c) Supporting Organizations 75

PART FOUR OTHER TAX-EXEMPT ORGANIZATIONS 79

13 Social Welfare Organizations 81

§ 13.1 Concept of Social Welfare 81

(b) Benefits to Members 81

§ 13.2 Requirement of Community 81

*(a) Community and Condominium Associations 81

*§ 13.2A Conduct of Business (New) 82

*§ 13.4 Comparison with Charitable Organizations 82

14 Business Leagues and Like Organizations 83

§ 14.1 Concept of Business League 83

*(a) General Principles 83

*(c) Line-of-Business Requirement 83

§ 14.2 Disqualifying Activities 84

*(a) Line-of-Business Requirements 84

(b) For-Profit Business Activities 85

(c) Performance of Particular Services 85

*(e) Commerciality (New) 85

15 Social Clubs 87

§ 15.1 Social Clubs in General 87

(b) Club Functions 87

§ 15.6 Sale of Club Assets 87

16 Labor, Agricultural, and Horticultural Organizations 89

§ 16.1 Labor Organizations 89

18 Employee Benefit Funds 91

§ 18.3 Voluntary Employees’ Beneficiary Association 91

19 Other Tax-Exempt Organizations 93

§ 19.1 Instrumentalities of United States 93

§ 19.2 Title-Holding Corporations 93

*(a) Single-Parent Organizations 93

(b) Multiple-Parent Organizations 94

§ 19.3 Local Associations of Employees 94

§ 19.4 Fraternal Organizations 94

*(a) Fraternal Beneficiary Societies 94

(b) Domestic Fraternal Societies 94

§ 19.5 Benevolent or Mutual Organizations 94

*(b) Mutual Organizations 94

*§ 19.7 Credit Unions 95

§ 19.11 Veterans’ Organizations 96

(a) General Rules 96

§ 19.17 Railroad Retirement Investment Trust 96

§ 19.18 Qualified Health Insurance Issuers 96

§ 19.19 Qualified Tuition Programs 97

(a) State-Sponsored Programs 97

(b) Educational Institution–Sponsored Programs 97

(c) Other Rules 97

§ 19.21 Governmental and Quasi-Governmental Entities 97

(b) Income Exclusion Rule 97

PART FIVE PRINCIPAL EXEMPT ORGANIZATION LAWS 99

20 Private Inurement and Private Benefit 101

*§ 20.2 Definition of Net Earnings 101

*§ 20.3 Definition of Insider 102

§ 20.4 Compensation Issues 102

(a) Meaning of Compensation 102

*(b) Determining Reasonableness of Compensation 102

(c) Percentage-Based Compensation 103

§ 20.5 Other Forms of Private Inurement 103

(h) Services Rendered 103

(j) Retained Interests 103

(j-1) Business Referral Operations (New) 103

(k) Embezzlements 104

§ 20.8 Private Inurement and Social Welfare Organizations 104

*§ 20.9 Private Inurement and Business Leagues 104

§ 20.10 Private Inurement and Social Clubs 105

§ 20.11 Private Benefit Doctrine 105

(a) General Rules 105

*(b) Incidental Private Benefit 106

*(d) Perspective 107

21 Intermediate Sanctions 109

§ 21.2 Tax-Exempt Organizations Involved 109

*§ 21.3 Disqualified Persons 109

§ 21.4 Transactions Involved 109

(a) General Rules 109

(f) Scholarships and Similar Grants 110

§ 21.6 Intermediaries 110

§ 21.7 For the Use of Transactions 110

§ 21.13 Indemnification and Insurance 110

*§ 21.17 College and University Compliance Project (New) 111

22 Legislative Activities by Tax-Exempt Organizations 113

§ 22.3 Lobbying by Charitable Organizations 113

(b) Concept of Lobbying 113

*(d) Expenditure Test 113

§ 22.6 Legislative Activities of Business Leagues 114

*(a) Business Expense Deduction Disallowance Rules 114

§ 22.7 Legislative Activities of Other Tax-Exempt Organizations 114

§ 22.9 Constitutional Law Framework 114

23 Political Campaign Activities by Tax-Exempt Organizations 115

§ 23.2 Prohibition on Charitable Organizations 115

(b) Participation or Intervention 115

§ 23.3 Political Campaign Expenditures and Tax Sanctions 116

*§ 23.5 Political Activities of Social Welfare Organizations 116

(b) Political Campaign Activities 117

(d) Proposed Regulations (New) 117

§ 23.8 Political Activities by Other Exempt Organizations 120

§ 23.9 Advocacy Communications 120

24 Unrelated Business Activities 121

§ 24.2 Definition of Trade or Business 121

(a) General Principles 121

*(b) Requirement of Profit Motive 122

(c) Factor of Competition 122

(g) Nonbusiness Activities 122

(h) Real Estate Development Activities 122

*(j) Concept of Investment Plus 122

§ 24.3 Definition of Regularly Carried On 124

(c) Fundraising and Similar Activities 124

(d) Preparatory Time 124

§ 24.4 Definition of Substantially Related 124

(f) Related Business Activities 124

*(g) Unrelated Business Activities 125

§ 24.5 Contemporary Applications of Unrelated Business Rules 125

(a) Educational Institutions 125

(b) Health Care Providers 125

(e) Business Leagues 127

(h) Advertising 127

(i) Fundraising 128

(k) Provision of Services 128

(l) Sales of Merchandise 129

*(q) Other Organizations’ Exempt Functions 129

§ 24.6 Modifications 129

*(a) Passive Income in General 129

*(b) Dividends 129

(g) Royalties 130

(h) Rent 130

*(n) Foreign Source Income 130

§ 24.7 Exceptions 131

*(j) Low-Cost Articles 131

(k) Mailing Lists 132

*(l) Associate Member Dues 132

*(m) Small Business Corporations Rules 132

*§ 24.10 Special Rules 132

§ 24.12 Unrelated Debt-Financed Income 133

(b) Debt-Financed Property 133

(c) Acquisition Indebtedness 133

(d) Exempt Function Borrowing (New) 134

*§ 24.14 Deduction Rules 134

*§ 24.15 College and University Compliance Project 135

PART SIX ACQUISITION ANDMAINTENANCE OF TAX EXEMPTION 137

25 Exemption Recognition and Notice Processes 139

*§ 25.1 Recognition Application Procedure 139

*(a) General Procedures 140

*(b) Substantially Completed Application 141

*(c) Issuance of Determinations and Rulings 141

*(d) User Fees 142

*(e) Application Form 142

*(h) Interactive Form 1023 (New) 142

(i) Impact of Tax Refunds (New) 143

*(j) IRS’s Triage Processing of Applications (New) 144

*(k) Applications Processing Controversy (New) 144

§ 25.2 Requirements for Charitable Organizations 145

*(a) General Rules 145

*(d) Recent Revisions in Process 146

§ 25.3 Nonprivate Foundation Status 147

*(a) Notice Requirement 147

§ 25.5 Requirements for Certain Employee Benefit Organizations 147

§ 25.5A Requirements for Certain Prepaid Tuition Plans (New) 147

*§ 25.6 Requirements for Certain Health Insurance Issuers 148

§ 25.6A Rules for Other Organizations (New) 148

*§ 25.7 Group Exemption Rules 150

*§ 25.8 Suspension of Tax Exemption 151

*§ 25.9 Notice Requirements for Political Organizations 151

*§ 25.11 Forfeiture of Tax Exemption 152

26 Administrative and Litigation Procedures 155

*§ 26.1 Administrative Procedures Where Recognition Denied 155

*§ 26.2 Revocation of Modification of Tax-Exempt Status: Administrative Procedures 155

*§ 26.3 Retroactive Revocation of Tax-Exempt Status 156

*§ 26.4A Statute of Limitations Matters (New) 156

§ 26.5 Revocation of Tax-Exempt Status: Litigation Procedures 158

(a) General Rules 158

*(b) Declaratory Judgment Rules 160

§ 26.6 IRS Examination Procedures and Practices 160

*(a) General IRS Exempt Organizations Audit Procedures and Practices 160

§ 26.6A Compliance Checks (New) 161

§ 26.7 Fast-Track Case Settlement Program 162

*§ 26.8 IRS Disclosure to State Officials 162

27 Operational Requirements 163

§ 27.1 Changes in Operations or Form 163

*(a) Changes in Operations 163

§ 27.2 Annual Reporting Rules 164

(a) Overview of Annual Information Returns 164

(b) Exceptions to Reporting Requirements 165

(d) Group Returns 165

§ 27.3 Redesigned Annual Information Returns 166

(o) Schedule H 166

(x) Transition Rules 166

(y) Uncertain Tax Positions (New) 166

(z) Preparer Tax Identification Numbers (New) 168

§ 27.4 Notification Requirement 168

*§ 27.5 Filing Requirements and Tax-Exempt Status 169

§ 27.5A Charitable Organizations Listing Reliance Rules (New) 171

§ 27.7 Electronic Filing Rules 173

(c) Waivers 173

§ 27.9 IRS Document Disclosure Rules 173

*(a) Federal Tax Law Disclosure Requirements 173

§ 27.10 Document Disclosure Obligations of Exempt Organizations 174

*(a) General Rules 174

(f) Harassment Campaign Exception 174

§ 27.13 Insurance Activities 174

*(b) Commercial-Type Insurance Rules 174

§ 27.14 Feeder Organizations 175

§ 27.15 Tax-Exempt Entity Leasing Rules 175

*(g) Partnership Arrangements 175

PART SEVEN INTERORGANIZATIONAL STRUCTURES AND OPERATIONAL FORMS 177

28 Tax-Exempt Organizations and Exempt Subsidiaries 179

§ 28.1 Subsidiaries Basics 179

§ 28.3 Tax-Exempt Subsidiaries of Charitable Organizations 180

§ 28.5 Contributions and Other Payments 180

29 Tax-Exempt Organizations and For-Profit Subsidiaries 181

§ 29.1 For-Profit Subsidiaries in General 181

(b) Choice of Form 181

§ 29.2 Potential of Attribution to Parent 181

§ 29.3 Financial Considerations 182

(c) Sharing of Resources 182

§ 29.7 Revenue from For-Profit Subsidiary 182

(d) Temporary Rule 182

§ 29.8 Liquidations 183

31 Tax-Exempt Organizations: Other Operations and Restructuring 185

§ 31.1 Organizational Considerations 185

(a) Form 185

(c) Control 185

§ 31.2 Operational Considerations 186

(a) Expenses 186

§ 31.3 Mergers 186

§ 31.3A Reorganizations (New) 186

§ 31.6 Single-Member Limited Liability Companies 187

§ 31.7 Low-Profit Limited Liability Companies 188

§ 31.8 Choice of Entity Considerations 188

(b) Federal Tax Law 188

PART EIGHT APPENDIXES 189

Appendix A Sources of Tax-Exempt Organizations Law 191

Appendix B Internal Revenue Code Sections 207

Cumulative Index 209