Title Details

About the Online Resources xiii

About the Author xv

Preface xvii

Book Citations xix

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 3

2 Overview of Nonprofit Sector and Tax-Exempt Organizations 5

2.1 Profile of Nonprofit Sector 5

2.2 Organization of the 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 9

4 Organizational, Operational, and Related Tests and Doctrines 11

4.3 Organizational Test 11

(a) Statement of Purposes 11

(b) Dissolution Requirements 11

4.4 Primary Purpose Test 12

4.5 Operational Test 12

(a) Basic Rules 12

(c) Aggregate Principle 13

4.6 Exclusively Standard 13

4.7 Commensurate Test 13

(a) Application of Commensurate Test 13

(b) Charitable Spending Initiative 14

4.7A Consideration of Organizations’ Names (New) 14

4.8 State Action Doctrine 15

(a) Doctrine in General 16

(b) Doctrine as Applied to Social Clubs 19

(c) Doctrine and Other Exempt Organizations (New) 19

(d) Statutory Law 21

4.10 Commerciality Doctrine 21

(a) Origin of Doctrine 21

(b) Contemporary Application of Doctrine 22

(c) Contemporary Perspective on Doctrine 22

4.11 Social Enterprise Developments (New) 22

(a) Concept of Social Enterprise 23

(b) Program-Related Investments 24

(c) Low-Profit Limited Liability Companies 24

(d) B Corporations 25

(e) Benefit Corporations 25

(f) Flexible Purpose Corporations 25

5 Nonprofit Governance 27

5.7 IRS and Governance 27

(b) IRS Ruling Policy 28

PART THREE TAX-EXEMPT CHARITABLE ORGANIZATIONS 29

6 Concept ofCharitable 31

6.2 Public Policy Doctrine 31

(c) Gender-Based Discrimination 31

(d) Other Forms of Discrimination 31

(e) Affirmative Action Principles 31

6.3 Charitable Concepts 32

(a) Requirements of Charitable Cases 32

(j) Tax Exemption Does Not Create Contract 32

(m)Tax Exemption Does Not Create Charitable Trust 32

7 Charitable Organizations 33

7.3 Credit Counseling 33

(d) Statutory Criteria for Exemption 33

7.4 Provisions of Housing 33

7.6 Promotion of Health 34

(b) Additional Statutory Requirements for Hospitals 34

(i) Fitness Centers 35

(j) Other Health Care Organizations 35

(k) Regional Health Information Organizations 35

(l) Health Insurance Exchanges (New) 35

(m)Accountable Care Organizations (New) 37

7.11 Promotion of Social Welfare 42

7.15 Other Categories of Charity 42

(a) Environmental Protection 42

(e) Local Economic Development 43

8 Educational Organizations 45

8.2 Education Contrasted with Propaganda 45

8.3 Educational Institutions 45

(a) Schools, Colleges, and Universities 45

9 Scientific Organizations 47

9.1 Federal Tax Laws Definition of Science 47

9.2 Concept of Research 47

10 Religious Organizations 49

10.1 Constitutional Law Framework 49

(a) General Constitution Law Principles 49

(b) Constitutional Law and Tax Exemption 49

10.3 Churches and Similar Institutions 50

(a) General Principles 50

(b) Associational Test 50

(c) Perspective 51

10.7 Apostolic Organizations 51

11 Other Charitable Organizations 53

11.2 Amateur Sports Organizations 53

11.8 Donor-Advised Funds 53

(a) Donor-Advised Fund Basics 53

(b) Statutory Criteria 53

(c) Treasury Department Report 54

12 Public Charities and Private Foundations 57

12.3 Categories of Public Charities 57

(c) Supporting Organizations 57

PART FOUR OTHER TAX-EXEMPT ORGANIZATIONS 59

13 Social Welfare Organizations 61

13.1 Concept of Social Welfare 61

(b) Benefits to Members 61

13.2 Requirements of Community 61

(a) Community and Condominium Associations 61

14 Business Leagues and Like Organizations 63

14.1 Concept of Business League 63

(c) Line-of-Business Requirement 63

14.2 Disqualifying Activities 63

(a) Line-of-Business Requirements 63

(b) For-Profit Business Activities 64

(c) Performance of Particular Services 64

15 Social Clubs 65

15.1 Social Clubs in General 65

(b) Club Functions 65

15.6 Sale of Club Assets 65

16 Labor, Agricultural, and Horticultural Organizations 67

16.1 Labor Organizations 67

18 Employee Benefit Funds 69

18.3 Voluntary Employees’ Beneficiary Association 69

19 Other Tax-Exempt Organizations 71

19.2 Title-Holding Corporations 71

(b) Multiple-Parent Organizations 71

19.4 Fraternal Organizations 71

(b) Domestic Fraternal Societies 71

19.5 Benevolent or Mutual Organizations 72

(b) Mutual Organizations 72

19.7 Credit Unions 72

19.11 Veterans’ Organizations 72

(a) General Rules 72

19.17 Railroad Retirement Investment Trust 72

19.18 Qualified Health Insurance Issuers 72

19.19 Qualified Tuition Programs 73

(c) Other Rules 73

19.21 Governmental and Quasi-Governmental Entities 73

(b) Income Exclusion Rule 73

PART FIVE PRINCIPAL EXEMPT ORGANIZATION LAWS 75

20 Private Inurement and Private Benefit 77

20.4 Compensation Issues 77

(a) Meaning of Compensation 77

(b) Determining Reasonableness of Compensation 77

(c) Percentage-Based Compensation 78

20.5 Other Forms of Private Inurement 78

(h) Services Rendered 78

(j) Retained Interests 78

(j-l) Business Referral Operations (New) 78

(k) Embezzlement 78

20.8 Private Inurement and Social Welfare Organizations 79

20.10 Private Inurement and Social Clubs 79

20.11 Private Benefit Doctrine 79

(a) General Rules 79

(b) Incidental Private Benefit 80

(d) Perspective 80

21 Intermediate Sanctions 83

21.2 Tax-Exempt Organizations Involved 83

21.4 Transactions Involved 83

(a) General Rules 83

(f) Scholarships and Similar Grants 83

21.6 Intermediaries 84

21.13 Indemnification and Insurance 84

22 Legislative Activities by Tax-Exempt Organizations 85

22.3 Lobbying by Charitable Organizations 85

(b) Concept of Lobbying 85

22.6 Legislative Activities of Business Leagues 85

(a) Business Expense Deduction Disallowance Rules 85

22.7 Legislative Activities of Other Tax-Exempt Organizations 85

22.9 Constitutional Law Framework 86

23 Political Campaign Activities by Tax-Exempt Organizations 87

23.2 Prohibition on Charitable Organizations 87

(b) Participation or Intervention 87

23.3 Political Campaign Expenditures and Tax Sanctions 88

23.5 Political Activities of Social Welfare Organizations 88

(b) Political Campaign Activities 88

23.8 Political Activities by Other Exempt Organizations 88

24 Unrelated Business Activities 89

24.2 Definition of Trade or Business 89

(a) General Principles 89

(c) Factor of Competition 89

(g) Nonbusiness Activities 89

(h) Real Estate Development Activities 90

24.3 Definition of Regularly Carried On 90

(c) Fundraising and Similar Activities 90

24.5 Contemporary Applications of Unrelated Business Rules 90

(a) Educational Institutions 90

(b) Health Care Providers 91

(e) Business Leagues 92

(h) Advertising 92

(i) Fundraising 93

(k) Provision of Services 93

(l) Sales of Merchandise 94

24.6 Modifications 94

(g) Royalties 94

(h) Rent 94

24.7 Exceptions 95

(j) Low-Cost Articles 95

(k) Mailing Lists 95

(l) Associate Member Dues 95

(m) Small Business Corporations Rules 95

24.10 Special Rules 95

24.12 Unrelated Debt-Financed Income 96

(b) Debt-Financed Property 96

(c) Acquisition Indebtedness 96

PART SIX ACQUISITION ANDMAINTENANCE OF TAX EXEMPTION 97

25 Exemption Recognition and Notice Processes 99

25.1 Recognition Application Procedure 99

(a) General Procedures 100

(b) Substantially Completed Application 100

(c) Issuance of Determinations and Rulings 101

(d) User Fees 101

(e) Application Form 102

(i) Impact of Tax Refunds 102

25.2 Requirements for Charitable Organizations 103

(a) General Rules 103

25.3 Nonprivate Foundation Status 103

(a) Notice Requirement 103

25.7 Group Exemption Rules 103

25.8 Suspension of Tax Exemption 103

25.9 Notice Requirements for Political Organizations 103

25.11 Forfeiture of Tax Exemption 104

26 Administrative and Litigation Procedures 105

26.1 Administrative Procedures Where Recognition Denied 105

26.2 Revocation of Modification of Tax-Exempt Status:

Administrative Procedures 105

26.3 Retroactive Revocation of Tax-Exempt Status 105

26.5 Revocation of Tax-Exempt Status: Litigation Procedures 106

(a) General Rules 106

(b) Declaratory Judgment Rules 108

26.6 IRS Examination Procedures and Practices 108

(a) General IRS Exempt Organizations Audit Procedures and Practices 108

26.8 IRS Disclosure to State Officials 108

27 Operational Requirements 111

27.1 Changes in Operations or Form 111

(a) Changes in Operations 111

27.2 Annual Reporting Rules 111

(a) Overview of Annual Information Returns 111

(b) Exceptions to Reporting Requirements 112

27.3 Redesigned Annual Information Returns 112

(o) Schedule H 112

(x) Transition Rules 113

(y) Uncertain Tax Positions (New) 113

(z) Preparer Tax Identification Numbers (New) 114

27.4 Notification Requirement 115

27.5 Filing Requirements and Tax-Exempt Status 116

27.5A Charitable Organizations Listing Reliance Rules (New) 117

27.7 Electronic Filing Rules 119

(c) Waivers 119

27.9 IRS Document Disclosure Rules 119

(a) Federal Tax Law Disclosure Requirements 119

27.10 Document Disclosure Obligations of Exempt Organizations 119

(a) General Rules 119

(f) Harassment Campaign Exception 119

27.14 Feeder Organizations 119

27.15 Tax-Exempt Entity Leasing Rules 120

(g) Partnership Arrangements 120

PART SEVEN INTERORGANIZATIONAL STRUCTURES AND OPERATIONAL FORMS 121

28 Tax-Exempt Organizations and Exempt Subsidiaries 123

28.1 Subsidiaries Basics 123

28.3 Tax-Exempt Subsidiaries of Charitable

Organizations 124

29 Tax-Exempt Organizations and For-Profit Subsidiaries 125

29.1 For-Profit Subsidiaries in General 125

(b) Choice of Form 125

29.2 Potential of Attribution to Parent 125

29.3 Financial Considerations 126

(c) Sharing of Resources 126

29.8 Liquidations 126

31 Tax-Exempt Organizations: Other Operations and Restructuring 127

31.1 Organizational Considerations 127

(a) Form 127

(c) Control 127

31.6 Single-Member Limited Liability Companies 127

31.7 Low-Profit Limited Liability Companies 128

31.8 Choice of Entity Considerations 128

(b) Federal Tax Law 128

PART EIGHT APPENDIXES 129

Appendix A Sources of Tax-Exempt Organizations Law 131

Appendix B Internal Revenue Code Sections 133

Cumulative Index 135