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What Constitutes ‘Church’ Eligible for Exemption?

Neither the Tax Code nor the Regulations provides a definition; The IRS uses a 14-point set of guidelines, plus the other limitations of Section 501(c)(3)

Sometimes it is easier to recognize a church eligible for federal tax exemption than to describe it.

Section 501(c)(3) of the Tax Code provides exemption for entities organized and operated exclusively for “religious” purposes and does not use the word “church” at all. The Regulations define neither a religious organization nor a church. The IRS and the courts treat the issue gingerly, recognizing the deference to religious groups required by the Constitution.

Mainstream churches, synagogues, temples and mosques of traditional denominations or sects are usually easy to recognize. It is the independent entities, with less traditional beliefs, which cause most...

Charities May Not Confer Private Benefits

An organization will not qualify for charitable exemption if it provides private benefit which is not quantitatively and qualitatively incidental to the public benefit of its activities.

Section 501(c)(3) of the Internal Revenue Code provides that an organization can not be recognized as charitable if any part of its net earnings “inures to the benefit of any private shareholder or individual.”

This prohibition on private inurement is generally interpreted to prohibit unjust or unreasonable monetary gain by insiders, such as officers, directors or members of the organization.

Co-venturing Can Benefit Both Business and Charity But May Be Regulated By Disclosure Laws

20 states and District of Columbia have specific requirements for registration or regulation of commercial co-venturing

Charities and for-profit businesses can often cooperate on promotional efforts that increase the sales of the business and generate valuable additional revenue for the charity. 

If, for example, the local hamburger chain franchise advertises that it will pay 50 cents to a local charity for children from each hamburger sold during the month of July, the company may increase sales while the charity will receive a nice contribution and a lot of good free publicity.  Consultants often call this cause-related marketing. The law has a different name for the relationship:  it is called commercial co-venturing.  And it may be subject...

Educational Institutions Not Totally Exempt From State Charitable Solicitation Registration

Many schools don’t realize that they, and their related foundations, are required to register, or apply for exemption, under a lot of state laws

An organization that solicits charitable contributions nationally must typically register in 39 states and the District of Columbia before it starts to solicit unless it is a type that is specifically excluded or exempt under a state’s charitable solicitation registration statute. Educational institutions and their related foundations are exempt from registration under many state laws.  But they are not exempt from all of them. 

Educational institutions, that routinely solicit their alumni all over the country, are required to register in about a dozen states and are required to formally apply for exemption in approximately 10 others in order to legally...

Sole Member Bylaws Can Protect Founder of Nonprofit

The right to appoint and remove directors and veto any amendments to governing documents is critical to control of the organization

We have frequently referred to a “sole member” corporation to protect a founder of a nonprofit corporation when the founder wants assurance that he or she can develop the organization as a career to help make the world better in some way.

Not everyone believes that they are appropriate or in the public interest.  But we have seen too many founders, who work for years essentially as volunteers, to create an organization and then get fired when their “best friends” on the Board decide to go in a different direction.  The community usually loses an important effort in such situations,...

Mergers and Affiliations Require ‘Due Diligence’

Information gained in the process will help you know what you are getting into and may help structure the form of the transaction to protect what you have

The due diligence process in considering a merger or affiliation is serious, but don’t let the lawyers use it to tell you why it shouldn’t be done. Lawyers are trained to tell you the risks. They will seldom provide the vision.

Lobbying Rules Create Opportunity for Charities

There are many ways to advocate for public policy goals without going beyond the limitations of the Tax Code

A charity that does not spend at least a portion of its time in advocacy work is probably not doing its job as well as it should.

Therefore, charities must understand the tax law definitions of "lobbying" and "legislation." There is a vast amount of advocacy that can be carried on without approaching tax limitations. Private foundations can support most of it, and preparing an application with foundation rules in mind can make it easier to get funded.

Tax law is not the only issue, however. Beware of federal and state lobbying registration requirements, with different definitions, and different reporting....

IRS Tea Party “Scandal” Shows Need for (c)(4) Definition

Evidence shows workers struggling to define limits, not Administration effort to target political foes

Despite the political grandstanding that erupted after the disclosure that IRS determinations staff and attorneys had asked some improper questions of Tea Party and other potentially political organizations applying for 501(c)(4) social welfare exempt status, there has been no evidence that the IRS or the Obama Administration was targeting political foes. 

When one reads the Treasury Inspector General’s Report, press reports of staff statements to the House Committee on Oversight and Government Reform, and comments of former IRS officials, one comes away with a vision of front line staff struggling to try to determine who can qualify as a (c)(4)...

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