The law of tax-exempt organizations / Bruce R. Hopkins.
2011
KF6449 .H6 2011 (Map It)
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Items
Details
Author
Title
The law of tax-exempt organizations / Bruce R. Hopkins.
Published
Hoboken, NJ : Wiley, [2011]
Copyright
©2011
Call Number
KF6449 .H6 2011
Edition
Tenth edition.
ISBN
9780470602171
0470602171
0470602171
Description
xxxvii, 1,014 pages : illustrations ; 26 cm
System Control No.
(OCoLC)713365774
Bibliography, etc. Note
Includes bibliographical references and index.
Record Appears in
Variant Title
Law of tax exempt organizations
Table of Contents
About the Author
xxix
Preface
xxxi
About the Online Resources
xxxv
Book Citations
xxxvii
pt. ONE
INTRODUCTION TO THE LAW OF TAX-EXEMPT ORGANIZATIONS
1.
Definition of and Rationales for Tax-Exempt Organizations
3
[§] 1.1
Definition of Nonprofit Organization
3
(a).
Nonprofit Organization Defined
4
(b).
Nonprofit Sector
5
[§] 1.2
Definition of Tax-Exempt Organization
6
[§] 1.3
Tax-Exempt Organizations Law Philosophy
9
[§] 1.4
Political Philosophy Rationale
11
[§] 1.5
Inherent Tax Rationale
17
[§] 1.6
Other Rationales and Reasons For Exempt Organizations
18
[§] 1.7
Freedom of Association Doctrine
20
2.
Overview of Nonprofit Sector and Tax-Exempt Organizations
23
[§] 2.1
Profile of Nonprofit Sector
24
[§] 2.2
Organization of IRS
28
(a).
IRS in General
29
(b).
Tax Exempt and Government Entities Division
30
[§] 2.3
Charitable Contribution Deduction Rules
32
[§] 2.4
Evolution of Statutory Scheme
35
pt. TWO
FUNDAMENTALS OF THE LAW OF TAX-EXEMPT ORGANIZATIONS
3.
Source, Advantages, and Disadvantages of Tax Exemption
43
[§] 3.1
Source of Tax Exemption
43
[§] 3.2
Recognition of Tax Exemption
45
[§] 3.3
Advantages of Tax-Exempt Status
47
(a).
Tax Exemption
47
(b).
Deductibility of Contributions
48
(c).
Grants
49
(d).
Preferential Postal Rates
49
(e).
Employee Benefits
49
(f).
Antitrust Laws
50
(g).
Securities Laws
51
(h).
Other Advantages
53
[§] 3.4
Disadvantages of Tax-Exempt Status
55
[§] 3.5
Alternatives to Tax-Exempt Status
56
4.
Organizational, Operational, and Related Tests and Doctrines
59
[§] 4.1
Forms of Tax-Exempt Organizations
59
(a).
General Rules
59
(b).
Check-the-Box Regulations
62
(i).
Basic Rules
62
(ii).
Exempt Organization Rules
63
[§] 4.2
Governing Instruments
64
[§] 4.3
Organizational Test
65
(a).
Statement of Purposes
66
(b).
Dissolution Requirements
69
(c).
Mission Statements
70
(d).
Rules for Limited Liability Companies
70
[§] 4.4
Primary Purpose Test
72
[§] 4.5
Operational Test
77
(a).
Basic Rules
77
(b).
Action Organizations
81
(c).
Aggregate Principle
83
[§] 4.6
Exclusively Standard
83
[§] 4.7
Commensurate Test
86
(a).
Application of Commensurate Test
86
(b).
Charitable Spending Initiative
88
[§] 4.8
State Action Doctrine
88
(a).
Doctrine in General
88
(b).
Doctrine as Applied to Social Clubs
92
[§] 4.9
Operations for Profit
94
[§] 4.10
Commerciality Doctrine
99
(a).
Origin of Doctrine
100
(i).
Nature of Doctrine
100
(ii).
Internal Revenue Code
101
(iii).
Tax Regulations
102
(iv).
Beginnings of the Doctrine
103
(v).
Focus on Publishing
105
(b).
Contemporary Application of Doctrine
110
(c).
Contemporary Perspective on Doctrine
113
5.
Nonprofit Governance
115
[§] 5.1
Boards of Directors Basics
116
(a).
Nomenclature
116
(b).
Number
116
(c).
Origin(s) of Positions
117
(d).
Control Factor
118
(e).
Scope of Authority
118
(f).
Other Considerations
118
(g).
Relationship to Officers
119
[§] 5.2
Board Composition and Tax Law
119
[§] 5.3
Duties and Responsibilities
121
(a).
Principles of Fiduciary Responsibility
121
(b).
Duties of Directors
122
(i).
Duty of Care
123
(ii).
Duty of Loyalty
123
(iii).
Duty of Obedience
123
[§] 5.4
Board Member Liability
124
(a).
Incorporation
124
(b).
Indemnification
124
(c).
Insurance
124
(d).
Immunity
125
(e).
Minimizing Legal Liability
125
(i).
Form
125
(ii).
Organization's Purposes and Mission
125
(iii).
Organization's Activities
125
(iv).
Articles of Organization
126
(v).
Structure and Bylaws
126
(vi).
Other Documents
126
(vii).
Related Entities
127
(viii).
Doing Business Rules
127
(ix).
Public Charity Status
127
(x).
Perspective
127
[§] 5.5
Sarbanes-Oxley Act
128
[§] 5.6
Nonprofit Governance Principles
129
(a).
Governance Philosophy in General
129
(b).
Senate Finance Committee Staff Paper
129
(c).
Treasury Department's Voluntary Best Practices
130
(d).
Committee for Purchase Proposed Best Practices
131
(e).
American National Red Cross Governance Modernization Act
132
(f).
Panel on Nonprofit Sector Governance Principles
133
(i).
Legal Compliance and Public Disclosure
134
(ii).
Effective Governance
134
(iii).
Strong Financial Oversight
136
(iv).
Responsible Fundraising
136
(g).
Redesigned Form 990
137
(h).
Boards of Credit Counseling Organizations
139
(i).
Other Developments
139
[§] 5.7
IRS and Governance
140
(a).
IRS Officials' Speeches
140
(b).
IRS Ruling Policy
142
(c).
College and University Compliance Questionnaire
143
(d).
Exempt Organizations Division 2009 Annual Report
144
(e).
IRS Training Materials
144
(f).
IRS Governance Check Sheet
145
(i).
Governing Body and Management
145
(ii).
Compensation
145
(iii).
Organizational Control
145
(iv).
Conflicts of Interest
146
(v).
Financial Oversight
146
(vi).
Document Retention
146
pt. THREE
TAX-EXEMPT CHARITABLE ORGANIZATIONS
6.
Concept of Charitable
149
[§] 6.1
Federal Tax Law Definition of Charitable
150
(a).
Popular and Ordinary Definition
150
(b).
Common Law Definition
150
(c).
Federal Tax Law Definition
152
[§] 6.2
Public Policy Doctrine
156
(a).
General Principles
156
(b).
Race-Based Discrimination
157
(i).
Supreme Court Pronouncement
157
(ii).
Prior IRS Policy
158
(iii).
Broader Policy Impact
161
(c).
Gender-Based Discrimination
162
(d).
Other Forms of Discrimination
163
(e).
Affirmative Action Principles
163
[§] 6.3
Collateral Concepts
165
(a).
Requirement of Charitable Class
166
(b).
Means-to-End/ Instrumentality Rule
168
(c).
Charity as Evolutionary Concept
170
(d).
Motive
170
(e).
Private Use
171
(f).
Cy Pres Doctrine
172
(g).
Fluid Recovery Principles
173
(h).
Charging of Fees
175
(i).
Illegal Activities
175
(j).
Tax Exemption Does Not Create Contract
176
(k).
Tax Exemption Does Not Create Third-Party Beneficiaries
177
(l).
Tax Exemption Does Not Create Private Right of Action
178
(m).
Tax Exemption Does Not Create Charitable Trust
178
7.
Charitable Organizations
179
[§] 7.1
Relief of Poor
180
[§] 7.2
Relief of Distressed
181
(a).
General Principles
182
(b).
Disaster Relief Programs
182
[§] 7.3
Credit Counseling
184
(a).
Initial Evolution of Exemption Law
185
(b).
IRS Enforcement Program
186
(c).
Contemporary IRS Policy
186
(d).
Statutory Criteria for Exemption
187
[§] 7.4
Provision of Housing
189
[§] 7.5
Down Payment Assistance
190
[§] 7.6
Promotion of Health
191
(a).
Hospitals
191
(i).
General Law
191
(b).
Additional Statutory Requirements
194
(i).
Hospitals Subject to Requirements
194
(ii).
Community Health Needs Assessments
194
(iii).
Financial Assistance Policy
194
(iv).
Emergency Medical Care Policy
195
(v).
Limitation on Charges
195
(vi).
Billing and Collection
195
(vii).
Mandatory IRS Review of Tax Exemption
195
(viii).
Effective Dates
195
(c).
Hospital Clinical Departments and Funds
196
(d).
Medical Research Organizations
196
(e).
Homes for Aged
197
(f).
Health Maintenance Organizations
198
(g).
Integrated Delivery Systems
199
(h).
Peer Review Organizations
200
(i).
Fitness Centers
203
(j).
Other Health Care Organizations
204
(k).
Regional Health Information Organizations
206
[§] 7.7
Lessening Burdens of Government
207
[§] 7.8
Advancement of Education
210
[§] 7.9
Advancement of Science
213
[§] 7.10
Advancement of Religion
213
[§] 7.11
Promotion of Social Welfare
215
[§] 7.12
Promotion of Arts
218
[§] 7.13
Consortia
220
(a).
General Principles
220
(b).
Adjunct Theory
222
(c).
Cooperative Arrangements
223
[§] 7.14
Instrumentalities of Government
225
[§] 7.16
Other Categories of Charity
229
(a).
Environmental Protection
229
(b).
Promotion of Patriotism
229
(c).
Promotion of Sports
230
(d).
Public Interest Law
230
(e).
Local Economic Development
232
(f).
Other Charitable Organizations
233
8.
Educational Organizations
235
[§] 8.1
Federal Tax Law Definition of Educational
235
[§] 8.2
Education Contrasted with Propaganda
236
[§] 8.3
Educational Institutions
239
(a).
Schools, Colleges, and Universities
239
(i).
General Criteria
240
(ii).
IRS Inquiry
241
(b).
Museums and Similar Organizations
242
(c).
Other Educational Organizations
244
[§] 8.4
Instruction of Individuals
244
[§] 8.5
Instruction of Public
248
[§] 8.6
Educational Activity as Commercial Business
252
[§] 8.7
Educational Activity as Private Benefit Function
255
[§] 8.8
Child Care Organizations
256
9.
Scientific Organizations
257
[§] 9.1
Federal Tax Law Definition of Science
257
[§] 9.2
Concept of Research
258
[§] 9.3
Requirement of Public Interest
261
[§] 9.4
Scientific as Charitable or Educational
261
[§] 9.5
Technology Transfer
262
10.
Religious Organizations
265
[§] 10.1
Constitutional Law Framework
265
(a).
General Constitutional Law Principles
266
(i).
Free Exercise Clause
266
(ii).
Establishment Clause
267
(iii).
Free Speech Considerations
270
(b).
Constitutional Law and Tax Exemption
271
[§] 10.2
Federal Tax Law Definition of Religion
272
(a).
Religion Defined
272
(b).
Bases for Denial of Tax Exemption
277
(c).
Abuse of Tax Exemption
278
[§] 10.3
Churches and Similar Institutions
280
(a).
General Principles
280
(b).
Associational Test
284
(c).
Perspective
285
[§] 10.4
Conventions or Associations of Churches
286
[§] 10.5
Integrated Auxiliaries of Churches
287
[§] 10.6
Religious Orders
289
[§] 10.7
Apostolic Organizations
290
[§] 10.8
Communal Groups
292
[§] 10.9
Retreat Facilities
292
11.
Other Charitable Organizations
295
[§] 11.1
Cruelty Prevention Organizations
295
[§] 11.2
Amateur Sports Organizations
296
[§] 11.3
Public Safety Testing Organizations
297
[§] 11.4
Cooperative Hospital Service Organizations
298
[§] 11.5
Cooperative Educational Service Organizations
301
[§] 11.6
Charitable Risk Pools
301
[§] 11.7
Literary Organizations
302
[§] 11.8
Donor-Advised Funds
303
(a).
Donor-Advised Fund Basics
303
(b).
Statutory Criteria
304
[§] 11.9
Endowment Funds
306
(a).
Definition of Endowment Fund
306
(b).
College and University Endowments
306
(c).
Form 990 Reporting
308
12.
Public Charities and Private Foundations
309
[§] 12.1
Federal Tax Law Definition of Private Foundation
310
(a).
Private Foundation Defined
310
(b).
Private Operating Foundations
310
(c).
Exempt Operating Foundations
312
(d).
Conduit Foundations
313
(e).
Common Fund Foundations
313
(f).
Other Types of Foundations
314
(g).
Organizational Test
314
[§] 12.2
Disqualified Persons
316
(a).
Substantial Contributors
316
(b).
Foundation Managers
317
(c).
Twenty Percent Owners
318
(d).
Family Members
319
(e).
Corporations
319
(f).
Partnerships
319
(g).
Trusts or Estates
320
(h).
Private Foundations
320
(i).
Governmental Officials
320
[§] 12.3
Categories of Public Charities
321
(a).
Institutions
321
(b).
Publicly Supported Charities
321
(i).
Donative Publicly Supported Charities---In General
322
(ii).
Facts-and-Circumstances Test
325
(iii).
Community Foundations
326
(iv).
Service Provider Publicly Supported Organizations
327
(v).
Public College and Universities Support Foundations
329
(c).
Supporting Organizations
329
(d).
Public Safety Testing Organizations
334
[§] 12.4
Private Foundation Rules
335
(a).
Self-Dealing
335
(b).
Mandatory Distributions
338
(c).
Excess Business Holdings
339
(d).
Jeopardizing Investments
341
(e).
Taxable Expenditures
342
(f).
Other Provisions
345
[§] 12.5
Consequences of Private Foundation Status
346
pt. FOUR
OTHER TAX-EXEMPT ORGANIZATIONS
13.
Social Welfare Organizations
351
[§] 13.1
Concept of Social Welfare
351
(a).
General Rules
351
(b).
Benefits to Members
354
[§] 13.2
Requirement of Community
357
(a).
Community and Condominium Associations
357
(b).
Broader Requirement of Community
361
[§] 13.3
Advocacy Organizations
362
(a).
Legislative Activities
362
(b).
Political Campaign Activities
362
[§] 13.4
Comparison with Charitable Organizations
362
14.
Business Leagues and Like Organizations
365
[§] 14.1
Concept of Business League
365
(a).
General Principles
366
(i).
Tax Law Characteristics
366
(ii).
Members
367
(iii).
Dues
367
(b).
Meaning of Business
368
(c).
Line-of-Business Requirement
369
(i).
Concept of Line of Business
369
(ii).
Supreme Court Pronouncement
369
(iii).
Other Developments
370
(d).
Membership Services
371
(e).
Professional Organizations
373
(f).
Business Leagues in General
374
(g).
Certification Programs
376
[§] 14.2
Disqualifying Activities
377
(a).
Line-of-Business Requirement
377
(b).
For-Profit Business Activities
378
(i).
General Rule
378
(ii).
Incidental Business Activity
379
(c).
Performance of Particular Services
379
(i).
Particular Services
379
(ii).
General Rule
380
(iii).
Particular Services Outside Membership
385
(iv).
Unrelated Business Activities
385
(d).
Private Inurement
386
[§] 14.3
Chambers of Commerce
386
[§] 14.4
Boards of Trade
387
[§] 14.5
Real Estate Boards
388
15.
Social Clubs
389
[§] 15.1
Social Clubs in General
389
(a).
Rationale for Tax Exemption
389
(b).
Club Functions
390
(c).
Other Tax Law Matters
392
[§] 15.2
Public Use Limitation
392
[§] 15.3
Investment Income Limitation
395
[§] 15.4
Exceptions to Limitations
396
[§] 15.5
Taxation of Social Clubs
397
[§] 15.6
Sale of Club Assets
402
16.
Labor, Agricultural, and Horticultural Organizations
405
[§] 16.1
Labor Organizations
405
[§] 16.2
Agricultural Organizations
410
[§] 16.3
Horticultural Organizations
414
17.
Political Organizations
415
[§] 17.1
Political Organizations in General
416
(a).
Political Organizations Defined
417
(b).
Principal Campaign Committees and Newsletter Funds
419
[§] 17.2
Organizational Test
420
[§] 17.3
Operational Test
420
[§] 17.4
Public Policy Advocacy Activities
421
[§] 17.5
Taxation of Political Organizations
422
[§] 17.6
Taxation of Other Exempt Organizations
425
[§] 17.7
Avoiding Political Organizations Tax
426
[§] 17.8
Independent Political Action Committees
428
18.
Employee Benefit Funds
431
[§] 18.1
Overview of Employee Benefits Law
432
(a).
Compensation in General
432
(b).
Fringe Benefits
433
(c).
Deferred Compensation
433
(d).
Qualified Plans
434
(i).
Defined Benefit Plans
434
(ii).
Defined Contribution Plans
434
(iii).
Funding Mechanism
436
(e).
403(b) Plans
436
(f).
Nonqualified Plans
438
(i).
457(b) Plans
439
(ii).
457(e)(11) Plans
439
(iii).
457(f) Plans
439
(iv).
Rabbi Trusts
440
(g).
Options for Tax-Exempt Employers
440
(h).
Perspective
440
[§] 18.2
Special Rules for Welfare Benefit Funds
441
(a).
Nondiscrimination Requirements
441
(b).
Tax-Exempt Status
442
[§] 18.3
Voluntary Employees' Beneficiary Associations
442
[§] 18.4
Supplemental Unemployment Benefit Trusts
446
[§] 18.5
Black Lung Benefits Trusts
448
[§] 18.6
Retirement Plan Trust Funds
450
[§] 18.7
Other Benefit Funds
450
19.
Other Tax-Exempt Organizations
453
[§] 19.1
Instrumentalities of the United States
454
[§] 19.2
Title-Holding Corporations
455
(a).
Single-Parent Organizations
455
(b).
Multi-Parent Organizations
458
[§] 19.3
Local Associations of Employees
460
[§] 19.4
Fraternal Organizations
461
(a).
Fraternal Beneficiary Societies
461
(b).
Domestic Fraternal Societies
464
[§] 19.5
Benevolent or Mutual Organizations
465
(a).
Local Life Insurance Associations
465
(b).
Mutual Organizations
466
[§] 19.6
Cemetery Companies
470
[§] 19.7
Credit Unions
473
[§] 19.8
Mutual Reserve Funds
474
[§] 19.9
Insurance Companies and Associations
475
[§] 19.10
Crop Operations Finance Corporations
476
[§] 19.11
Veterans' Organizations
476
(a).
General Rules
476
(b).
Pre-1880 Organizations
478
[§] 19.12
Farmers' Cooperatives
478
[§] 19.13
Shipowners' Protection and Indemnity Associations
485
[§] 19.14
Homeowners' Associations
485
[§] 19.15
High-Risk Individuals Health Care Coverage Organizations
487
[§] 19.16
Workers' Compensation Reinsurance Organizations
488
(a).
State-Sponsored Organizations
488
(b).
Certain Insurance Companies
488
[§] 19.17
Railroad Retirement Investment Trust
489
[§] 19.18
Qualified Health Insurance Issuers
489
[§] 19.19
Qualified Tuition Programs
489
(a).
State-Sponsored Programs
489
(b).
Educational Institution-Sponsored Programs
490
(c).
Other Rules
491
[§] 19.20
Professional Football Leagues
492
[§] 19.21
Governmental and Quasi-Governmental Entities
492
(a).
Intergovernmental Immunity
492
(b).
Income Exclusion Rule
493
(c).
Integral Parts of States
495
(d).
State Instrumentalities
497
(e).
Related Considerations
498
[§] 19.22
Native American Tribes
498
[§] 19.23
Other Tax-Exempt Organizations
499
[§] 19.24
Nonexempt Membership Organizations
500
pt. FIVE
PRINCIPAL EXEMPT ORGANIZATION LAWS
20.
Private Inurement and Private Benefit
505
[§] 20.1
Concept of Private Inurement
507
[§] 20.2
Definition of Net Earnings
508
[§] 20.3
Definition of Insider
510
[§] 20.4
Compensation Issues
513
(a).
Meaning of Compensation
513
(b).
Determining Reasonableness of Compensation
513
(c).
Percentage-Based Compensation
517
(d).
Multiple Payors
519
(e).
Role of Board
519
(f).
Board Member Compensation
519
(g).
Actuality of Services Rendered
520
(h).
Illegal Payments
520
[§] 20.5
Other Forms of Private Inurement
520
(a).
Rental Arrangements
521
(b).
Lending Arrangements
521
(c).
Sales of Assets
522
(d).
Equity Distributions
523
(e).
Assumptions of Liability
523
(f).
Employee Benefits
524
(g).
Tax Avoidance Schemes
525
(h).
Services Rendered
526
(i).
Provision of Goods or Refreshments
528
(j).
Retained Interests
529
(k).
Embezzlements
529
[§] 20.6
Per Se Private Inurement
529
[§] 20.7
Incidental Private Inurement
531
[§] 20.8
Private Inurement and Social Welfare Organizations
533
[§] 20.9
Private Inurement and Business Leagues
533
[§] 20.10
Private Inurement and Social Clubs
535
[§] 20.11
Private Benefit Doctrine
536
(a).
General Rules
537
(b).
Incidental Private Benefit
538
(c).
Joint Venture Law
540
(d).
Perspective
544
21.
Intermediate Sanctions
547
[§] 21.1
Concept of Intermediate Sanctions
548
[§] 21.2
Tax-Exempt Organizations Involved
548
[§] 21.3
Disqualified Persons
549
[§] 21.4
Transactions Involved
551
(a).
General Rules
551
(b).
Revenue-Sharing Arrangements
553
(c).
Automatic Excess Benefit Transactions in General
554
(d).
Automatic Excess Benefit Transactions and Supporting Organizations
554
(e).
Automatic Excess Benefit Transactions and Donor-Advised Funds
555
(f).
Scholarships and Similar Grants
555
[§] 21.5
Controlled Entities
557
[§] 21.6
Intermediaries
557
[§] 21.7
For the Use of Transactions
558
[§] 21.8
Initial Contract Exception
561
[§] 21.9
Rebuttable Presumption of Reasonableness
562
(a).
Independent Body
562
(b).
Appropriate Data
562
(c).
Adequate Documentation
563
[§] 21.10
Excise Tax Regime
564
[§] 21.11
Correction Requirement
565
[§] 21.12
Definitions
567
(a).
Participation
567
(b).
Knowing
568
(c).
Reliance on Professional Advice
568
(d).
Willful
569
(e).
Occurrence
569
[§] 21.13
Indemnification and Insurance
570
[§] 21.14
Return for Payment of Excise Taxes
570
[§] 21.15
Statute of Limitations
571
[§] 21.16
Interrelationship with Private Inurement Doctrine
571
22.
Legislative Activities by Tax-Exempt Organizations
575
[§] 22.1
Legislative Activities Law for Exempt Organizations---Introduction
576
[§] 22.2
Meaning of Legislation
576
(a).
Substantial Part Test
576
(b).
Expenditure Test
577
(c).
Associations' Dues Deductibility Test
577
[§] 22.3
Lobbying by Charitable Organizations
577
(a).
Legislative History
578
(b).
Concept of Lobbying
579
(c).
Substantial Part Test
579
(i).
Action Organizations
579
(ii).
Allowable Lobbying
580
(iii).
Exceptions
581
(iv).
Reporting Rules
582
(d).
Expenditure Test
583
(i).
Influencing Legislation
583
(ii).
Allocation Rules
585
(iii).
Allowable Lobbying
585
(iv).
Non-Earmarked Grants
587
(v).
Exceptions
588
(vi).
Election of Test
589
(vii).
Evaluating Election
589
(viii).
Affiliated Organizations
590
(ix).
Record-Keeping Requirements
591
(x).
Reporting Rules
591
[§] 22.4
Lobbying Expenditures and Tax Sanctions
591
[§] 22.5
Legislative Activities of Social Welfare Organizations
592
[§] 22.6
Legislative Activities of Business Leagues
593
(a).
Business Expense Deduction Disallowance Rules
593
(b).
Flow-Through Rules
596
(c).
Proxy Tax Rules
597
[§] 22.7
Legislative Activities of Other Tax-Exempt Organizations
598
[§] 22.8
Internet Communications
599
[§] 22.9
Constitutional Law Framework
600
[§] 22.10
Federal Regulation of Lobbying
605
23.
Political Campaign Activities by Tax-Exempt Organizations
607
[§] 23.1
Political Campaign Activities By Charitable Organizations---Introduction
608
[§] 23.2
Prohibition on Charitable Organizations
608
(a).
Scope of the Proscription
608
(b).
Participation or Intervention
609
(i).
Terminology
610
(ii).
Political Campaign Intervention
610
(iii).
Ascertaining Intervention
610
(iv).
Summary of Law
611
(v).
Candidate Appearances
614
(vi).
Individual Participation
615
(c).
Voter Education Activities
615
(d).
Requirement of Candidate
618
(e).
Requirement of Campaign
618
(f).
Requirement of Public Office
618
(g).
Activist Organizations
619
[§] 23.3
Political Campaign Expenditures and Tax Sanctions
623
[§] 23.4
Taxation of Political Expenditures
626
[§] 23.5
Political Activities of Social Welfare Organizations
627
(a).
Allowable Campaign Activity
627
(b).
Political Campaign Activities
627
(c).
Political Activities
628
[§] 23.6
Political Activities By Labor Organizations
629
[§] 23.7
Political Activities By Business Leagues
629
[§] 23.8
Political Activities By Other Exempt Organizations
630
[§] 23.9
Advocacy Communications
630
[§] 23.10
Internet Communications
631
24.
Unrelated Business Activities
633
[§] 24.1
Introduction to Unrelated Business Rules
634
[§] 24.2
Definition of Trade or Business
637
(a).
General Principles
637
(b).
Requirement of Profit Motive
638
(c).
Factor of Competition
640
(d).
Commerciality
640
(e).
Charging of Fees
641
(f).
Fragmentation Rule
643
(g).
Nonbusiness Activities
644
(h).
Real Estate Development Activities
646
(i).
Occasional Sales
647
[§] 24.3
Definition of Regularly Carried On
648
(a).
General Principles
648
(b).
Determining Regularity
649
(c).
Fundraising and Similar Activities
650
(d).
Preparatory Time
651
[§] 24.4
Definition of Substantially Related
651
(a).
General Principles
652
(b).
Size and Extent Test
653
(c).
Same State Rule
654
(d).
Dual Use Rule
655
(e).
Exploitation Rule
656
(f).
Related Business Activities
657
(g).
Unrelated Business Activities
659
[§] 24.5
Contemporary Applications of Unrelated Business Rules
660
(a).
Educational Institutions
660
(b).
Health Care Providers
664
(i).
Various Related Businesses
664
(ii).
Sales of Pharmaceuticals
665
(iii).
Testing Services
666
(iv).
Fitness Centers
666
(v).
Physical Rehabilitation Programs
667
(vi).
Other Health Care Activities
668
(c).
Museums
669
(d).
Social Welfare Organizations
670
(e).
Business Leagues
671
(i).
Services to Members
671
(ii).
Insurance Programs
672
(iii).
Associate Member Dues
674
(iv).
Other Association Business Activities
674
(f).
Labor and Agricultural Organizations
675
(g).
Credit Unions
676
(h).
Advertising
677
(i).
Concept of Advertising
677
(ii).
General Rules
677
(iii).
Concept of Related Advertising
680
(i).
Fundraising
681
(i).
Fundraising as Unrelated Business
681
(ii).
Affinity Card Programs
682
(iii).
Sales of Mailing Lists
683
(iv).
Application of Exceptions
683
(v).
Tax Planning Consulting
684
(j).
Travel and Tour Activities
685
(k).
Provision of Services
687
(l).
Sales of Merchandise
689
(m).
Share-Crop Leasing
690
(n).
Retirement Plan Reversions
691
(o).
Internet Communications
692
(p).
Debt Management Plan Services
694
(q).
Other Organizations' Exempt Functions
694
[§] 24.6
Modifications
695
(a).
Passive Income in General
695
(b).
Dividends
696
(c).
Interest
696
(d).
Securities Lending Income
696
(e).
Certain Consideration
696
(f).
Annuities
696
(g).
Royalties
697
(h).
Rent
698
(i).
General Rules
698
(ii).
Passive Rent Test
699
(iii).
Related Rental Activities
699
(i).
Other Investment Income
700
(j).
Capital Gains
700
(k).
Loan Commitment Fees
701
(l).
Research Income
701
(m).
Electric Companies' Member Income
702
(n).
Foreign Source Income
702
(o).
Brownfield Sites Gain
703
(p).
Religious Order Rule
703
(q).
Charitable Deduction
703
(r).
Specific Deduction
704
(s).
Net Operating Losses
704
[§] 24.7
Exceptions
705
(a).
Volunteer-Conducted Businesses
705
(b).
Convenience Businesses
707
(c).
Sales of Gift Items
707
(d).
Businesses of Employees' Associations
708
(e).
Entertainment Activities
708
(f).
Trade Shows
709
(g).
Hospital Services
711
(h).
Gambling
712
(i).
Pole Rentals
712
(j).
Low-Cost Articles
712
(k).
Mailing Lists
713
(l).
Associate Member Dues
713
(m).
Small Business Corporations Rules
714
[§] 24.8
Corporate Sponsorships
714
[§] 24.9
Partnership Rules
718
[§] 24.10
Special Rules
719
[§] 24.11
Commercial-Type Insurance
721
[§] 24.12
Unrelated Debt-Financed Income
721
(a).
General Principles
722
(b).
Debt-Financed Property
722
(c).
Acquisition Indebtedness
724
[§] 24.13
Tax Structure
727
[§] 24.14
Deduction Rules
727
[§] 24.15
College and University Compliance Project
729
pt. SIX
ACQUISITION AND MAINTENANCE OF TAX EXEMPTION
25.
Exemption Recognition and Notice Processes
733
[§] 25.1
Recognition Application Procedure
734
(a).
General Procedures
735
(i).
Required Information
736
(ii).
Other Procedural Elements
738
(iii).
Preparation of Application
739
(b).
Substantially Completed Application
740
(c).
Issuance of Determinations and Rulings
742
(d).
User Fees
743
(e).
Application Form
744
(f).
Penalties for Perjury
748
(g).
TE/GE Determination System
749
(h).
Cyber Assistant
749
[§] 25.2
Requirements for Charitable Organizations
749
(a).
General Rules
749
(b).
Exceptions
752
(c).
Limited Liability Companies
753
[§] 25.3
Nonprivate Foundation Status
753
(a).
Notice Requirement
753
(b).
Rules for New Publicly Supported Charities
754
[§] 25.4
Requirements for Certain Credit Counseling Organizations
754
[§] 25.5
Requirements for Certain Employee Benefit Organizations
755
[§] 25.6
Requirements for Certain Health Insurance Issuers
755
[§] 25.7
Group Exemption Rules
755
[§] 25.8
Suspension of Tax Exemption
759
[§] 25.9
Notice Requirements for Political Organizations
760
[§] 25.10
Integral Part Doctrine
761
(a).
Affiliated Organizations
762
(b).
Divisions
765
[§] 25.11
Forfeiture of Tax Exemption
766
26.
Administrative and Litigation Procedures
767
[§] 26.1
Administrative Procedures Where Recognition Denied
767
[§] 26.2
Revocation or Modification of Tax-Exempt Status: Administrative Procedures
769
[§] 26.3
Retroactive Revocation of Tax-Exempt Status
770
[§] 26.4
Tax Consequences of Retroactive Revocation of Exempt Status of Public Charities
773
(a).
Tax Treatments: Corporations
774
(b).
Tax Treatments: Individuals
777
[§] 26.5
Revocation of Tax-Exempt Status: Litigation Procedures
778
(a).
General Rules
778
(b).
Declaratory Judgment Rules
780
(i).
General Requirements
780
(ii).
Exhaustion of Administrative Remedies
784
(iii).
Deductibility of Contributions
785
(iv).
Administrative Record
786
(c).
Other Approaches
788
[§] 26.6
IRS Examination Procedures and Practices
790
(a).
General IRS Exempt Organizations Audit Procedures and Practices
790
(i).
General Procedures
790
(ii).
Types of Examinations
792
(iii).
Controversy
794
(iv).
Coping with Examination
795
(b).
IRS Exempt Organizations Examination Guidelines
795
(c).
Church Audits
796
[§] 26.7
Fast-Track Case Settlement Program
801
[§] 26.8
IRS Disclosure to State Officials
802
27.
Operational Requirements
805
[§] 27.1
Changes in Operations or Form
806
(a).
Changes in Operations
806
(b).
Changes in Form
807
[§] 27.2
Annual Reporting Rules
809
(a).
Overview of Annual Information Returns
809
(i).
Form 990
810
(ii).
Form 990-EZ
810
(iii).
Form 990-PF
810
(iv).
Filing Dates
812
(v).
Penalties
812
(vi).
Assessments
814
(vii).
Miscellaneous
814
(b).
Exceptions to Reporting Requirements
815
(i).
Churches and Other Religious Organizations
815
(ii).
Small Organizations
815
(iii).
Other Exempted Organizations
816
(c).
Limited Liability Companies
818
(d).
Group Returns
818
[§] 27.3
Redesigned Annual Information Return
819
(a).
Part I (Summary)
819
(b).
Part III
819
(c).
Part IV
819
(d).
Part V
819
(e).
Part VI
820
(f).
Part VII
820
(g).
Parts VIII-XI
820
(h).
Schedule A
820
(i).
Schedule B
821
(j).
Schedule C
821
(k).
Schedule D
821
(l).
Schedule E
821
(m).
Schedule F
821
(n).
Schedule G
822
(o).
Schedule H
822
(p).
Schedule I
822
(q).
Schedule J
822
(r).
Schedule K
823
(s).
Schedule L
823
(t).
Schedule M
823
(u).
Schedule N
824
(v).
Schedule O
824
(w).
Schedule R
824
(x).
Transition Rules
824
[§] 27.4
Notification Requirement
824
[§] 27.5
Filing Requirements and Tax-Exempt Status
825
[§] 27.6
Reporting By Political Organizations
826
(a).
General Rules
826
(b).
Filing Dates
827
[§] 27.7
Electronic Filing Rules
828
(a).
Modernized e-File System
828
(b).
Mandatory Electronic Filing
828
(c).
Waivers
829
[§] 27.8
Unrelated Business Income Tax Returns
830
[§] 27.9
IRS Document Disclosure Rules
831
(a).
Federal Tax Law Disclosure Requirements
831
(i).
General Rules
832
(ii).
Exempt Organizations Documents
833
(b).
Freedom of Information Act
835
[§] 27.10
Document Disclosure Obligations of Exempt Organizations
836
(a).
General Rules
836
(b).
Rules as to Inspection
837
(c).
Rules as to Copies
837
(d).
Failure to Comply
838
(e).
Widely Available Exception
838
(f).
Harassment Campaign Exception
839
(g).
Penalties
840
(h).
Political Organizations
840
[§] 27.11
Information or Services Disclosure
840
[§] 27.12
Fundraising Disclosure
841
[§] 27.13
Insurance Activities
843
(a).
General Rules
843
(b).
Commercial-Type Insurance Rules
844
(c).
Applicable Insurance Contract Reporting Requirements
847
(d).
Charitable Split-Dollar Insurance Plans
848
[§] 27.14
Feeder Organizations
848
[§] 27.15
Tax-Exempt Entity Leasing Rules
852
(a).
Introduction
852
(b).
Summary of Rules
853
(c).
Definition of Tax-Exempt Entity
853
(d).
Definition of Related Entity
854
(e).
Recovery Periods
854
(f).
Definition of Tax-Exempt Use Property
855
(g).
Partnership Arrangements
856
(h).
Interrelationship with Certain Tax Shelter Rules
858
[§] 27.16
Tax-Exempt Organizations and Tax Shelters
859
(a).
General Concept of Tax Shelter
859
(b).
Judicial Doctrines Used to Combat Tax Shelters
860
(c).
Tax Shelter Tax Penalties
860
(d).
Reportable Transactions
860
(e).
Tax Shelters in Exempt Organizations Context
861
(f).
Excise Tax Penalties
861
[§] 27.17
International Grantmaking Requirements
864
(a).
Charitable Organizations Generally
864
(b).
Private Foundations
865
(c).
Treasury Anti-Terrorist Financing Guidelines
865
[§] 27.18
Record-Keeping Requirements
866
pt. SEVEN
INTERORGANIZATIONAL STRUCTURES AND OPERATIONAL FORMS
28.
Tax-Exempt Organizations and Exempt Subsidiaries
871
[§] 28.1
Subsidiaries Basics
871
[§] 28.2
Charitable Organizations as Subsidiaries
873
(a).
Subsidiaries of Social Welfare Organizations
873
(b).
Subsidiaries of Business Leagues
874
(c).
Subsidiaries of Other Noncharitable Exempt Organizations
875
(d).
Subsidiaries of Domestic Charitable Organizations
876
(e).
Subsidiaries of Foreign Charitable Organizations
877
[§] 28.3
Tax-Exempt Subsidiaries of Charitable Organizations
880
[§] 28.4
Other Combinations of Tax-Exempt Organizations
881
[§] 28.5
Contributions and Other Payments
882
[§] 28.6
Revenue from Tax-Exempt Subsidiary
884
29.
Tax-Exempt Organizations and For-Profit Subsidiaries
887
[§] 29.1
For-Profit Subsidiaries in General
888
(a).
Establishing For-Profit Subsidiary
888
(b).
Choice of Form
889
(c).
Control Element
890
[§] 29.2
Potential of Attribution to Parent
891
[§] 29.3
Financial Considerations
895
(a).
Capitalization
895
(b).
Compensation
896
(c).
Sharing of Resources
896
[§] 29.4
Asset Accumulations
897
[§] 29.5
Subsidiaries in Partnerships
898
[§] 29.6
Effect of For-Profit Subsidiaries on Public Charity Status
899
(a).
Publicly Supported Organizations
899
(b).
Supporting Organizations
899
[§] 29.7
Revenue from For-Profit Subsidiary
900
(a).
Income Flows to Parent
900
(b).
Tax Treatment of Income from Subsidiary
901
(c).
Tax Treatment of Revenue Received by Taxable Subsidiary
903
(d).
Temporary Rule
903
[§] 29.8
Liquidations
904
30.
Tax-Exempt Organizations and Joint Ventures
907
[§] 30.1
Partnerships and Joint Ventures Basics
907
(a).
Partnerships
907
(b).
Joint Ventures
911
(c).
Law-Imposed Joint Ventures
913
[§] 30.2
Public Charities as General Partners
914
(a).
Evolution of the Law
915
(b).
Current State of Law
918
(i).
General Rules
918
(ii).
Health Care Institutions
920
[§] 30.3
Whole-Entity Joint Ventures
922
(a).
Overview of Law
922
(b).
IRS Guidance
923
(i).
Fact Situation 1
923
(ii).
Fact Situation 2
924
(iii).
Summary of Guidance
925
(iv).
Subsequent Case Law
926
[§] 30.4
Ancillary Joint Ventures
928
[§] 30.5
Low-Income Housing Ventures
931
[§] 30.6
Information Reporting
933
[§] 30.7
Alternatives to Partnerships
934
31.
Tax-Exempt Organizations: Other Operations and Restructuring
937
[§] 31.1
Organizational Considerations
937
(a).
Form
937
(b).
Governing Boards
938
(c).
Control
941
(d).
Attribution Considerations
942
[§] 31.2
Operational Considerations
942
(a).
Expenses
943
(b).
Gifts and Grants
944
[§] 31.3
Mergers
945
[§] 31.4
Limited Liability Company Law Basics
947
[§] 31.5
Multi-Member Limited Liability Companies
948
[§] 31.6
Single-Member Limited Liability Companies
949
[§] 31.7
Low-Profit Limited Liability Companies
953
[§] 31.8
Choice of Entity Considerations
953
[§] 31.9
Conversion from Exempt to Nonexempt Status
954
(a).
State Law
954
(b).
Federal Tax Law
955
[§] 31.10
Conversion from Nonexempt to Exempt Status
961
(a).
State Law
961
(b).
Federal Tax Law
962
(c).
Gain or Loss Recognition
964
pt. EIGHT
APPENDIXES
A.
Sources of Tax-Exempt Organization Law
969
B.
Internal Revenue Code Sections
983
C.
74 Categories of Tax-Exempt Organizations
997
Index
1001