Private Letter Ruling 201120036
Nothing like a slightly sensational headline to grab their interest. This is probably not the work of the vast right wing conspiracy. I've made a desultory attempt to figure out the organization involved but haven't had any luck yet. I've included a link to the full text so maybe you can figure it out. The most frustrating part about private letter rulings is their anonymity. Of course that is the fun part because you can try to figure out who it is or just make something up. So here is the story.
Org X has been denied its application for exempt status. X's members are for the most part employees of Y. They are a little confused as to when they started :
Page 1 of the Form 1023 application states your organization, X, was formed as an unincorporated association on December 1, 1992, as this is when the Y Company formally recognized you as an employee caucus group. However, the document entitled "X Original Charter" indicates you were formed on July 20, 1995. visibility within the Y Company and beyond to its members, and to provide an official point of contact between its membership and Y, as well as with other gay, lesbian, bisexual, and transgender organizations external to the Y Company." You also indicate having the Y Company become the employer of choice for individuals of the lesbian, gay, bisexual, and transgender community where these individuals can work in a culture of equality and enjoy successful employment.
That type of institutional memory problem is common to membership organizations that evolve with different viewpoints on where it all began. It's probably better if you can keep it consistent within the Form 1023, but I don't think that was there major problem.
The organization has some significant achievements:
Past achievements made by you and additionally listed in the activity narrative and in documentation included with the application include working with the Y Company to implement Extended Household Healthcare Benefits in 1995, assisting in adding "sexual orientation" into the company's anti- discrimination policy in 2004, the granting of Domestic Partner benefits to lesbian, gay, bisexual, and transgender and straight employees (in Canada in 1994 and the United States in 1997), creating and deploying workplace guidelines to aid employees and their managers and becoming an advocate for lesbian, gay, bisexual, and transgender employees who have experienced harassment in the workplace. And in 2006 you joined the Business Coalition for Domestic Partner Benefits Tax Equity. Your organizing document also lists documentation to support similar activities in your "Goals" section.
Originally published on Passive Activities and Other Oxymorons on May 27th, 2011.
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As a result of your efforts within the Y Company, you, as well as the Y Company, have received several forms of external recognition. These include the Y Company being placed on several best places to work list for lesbian, gay, bisexual, and transgender employees and have received several corporate leadership awards from your efforts, specifically in 1996, 2003, 2005 and 2007.
There are probably enough clues in there to figure out who the Y Company is, but I haven't been able to.
So what is the problem with X's application for exempt status ?
....you have stated in a "Performance Excellence Plan" submitted with your application, that your goals and objectives include increasing public awareness of the Y Company's commitment to member employees, grow awareness of the Y Company brand in the members community and assist the Y
Company in regaining a "leadership position" in the members market. You also stated that you took part in a job fair as representatives of the Y Company to enable the Y Company to demonstrate its diverse workforce. As this court case indicated, promotion of a for-profit industry and/or business is a substantial nonexempt purpose and, even as a secondary activity, precludes exemption under section 501(c)(3) of the Code. Furthermore, as with the case involving the Better Business Bureau of Washington, D.C., regardless of the number of truly exempt activities, the non-exempt purpose of your organization is too substantial to ignore, especially when considering you are primarily funded by the Y Company.
It would be a little tedious for me to list them all but in its denial of exemption under 501(c)(3), the IRS suggests numerous times that X consider 501(c)(5) "Labor, agricultural, or horticultural organizations". Besides continuing to maintain that they qualify under (c)(3) they refuse to do that because:
In your response you have stated that applying for exemption under section 501(c)(5) is not an option, as this would result in you and your members violating the policies of the Y Company, as the Y Company does not allow its employees to establish labor organizations.
So enlightened as the Y Company may be on LGBT issues, they don't want no union organizers hanging around the shop.
I still want to figure out who the Y Company is. One other clue is that X indicated that it had joined the Business Coalition for Domestic Partners Benefits Tax Equity in 2006. The membership list is pretty impressive.
I'm going to ask some of my leftist friends what they would think about the X organization that celebrates the LGBT friendly policies of the union busting Y company.
Showing posts with label Section 501(c)(3). Show all posts
Showing posts with label Section 501(c)(3). Show all posts
Sunday, July 6, 2014
Saturday, July 5, 2014
LGBT Advocacy Organization Denied Exempt Status
Originally published on Passive Activities and Other Oxymorons on May 27th, 2011.
____________________________________________________________________________
Private Letter Ruling 201120036
Nothing like a slightly sensational headline to grab their interest. This is probably not the work of the vast right wing conspiracy. I've made a desultory attempt to figure out the organization involved but haven't had any luck yet. I've included a link to the full text so maybe you can figure it out. The most frustrating part about private letter rulings is their anonymity. Of course that is the fun part because you can try to figure out who it is or just make something up. So here is the story.
Org X has been denied its application for exempt status. X's members are for the most part employees of Y. They are a little confused as to when they started :
Page 1 of the Form 1023 application states your organization, X, was formed as an unincorporated association on December 1, 1992, as this is when the Y Company formally recognized you as an employee caucus group. However, the document entitled "X Original Charter" indicates you were formed on July 20, 1995. visibility within the Y Company and beyond to its members, and to provide an official point of contact between its membership and Y, as well as with other gay, lesbian, bisexual, and transgender organizations external to the Y Company." You also indicate having the Y Company become the employer of choice for individuals of the lesbian, gay, bisexual, and transgender community where these individuals can work in a culture of equality and enjoy successful employment.
That type of institutional memory problem is common to membership organizations that evolve with different viewpoints on where it all began. It's probably better if you can keep it consistent within the Form 1023, but I don't think that was there major problem.
The organization has some significant achievements:
Past achievements made by you and additionally listed in the activity narrative and in documentation included with the application include working with the Y Company to implement Extended Household Healthcare Benefits in 1995, assisting in adding "sexual orientation" into the company's anti- discrimination policy in 2004, the granting of Domestic Partner benefits to lesbian, gay, bisexual, and transgender and straight employees (in Canada in 1994 and the United States in 1997), creating and deploying workplace guidelines to aid employees and their managers and becoming an advocate for lesbian, gay, bisexual, and transgender employees who have experienced harassment in the workplace. And in 2006 you joined the Business Coalition for Domestic Partner Benefits Tax Equity. Your organizing document also lists documentation to support similar activities in your "Goals" section.
As a result of your efforts within the Y Company, you, as well as the Y Company, have received several forms of external recognition. These include the Y Company being placed on several best places to work list for lesbian, gay, bisexual, and transgender employees and have received several corporate leadership awards from your efforts, specifically in 1996, 2003, 2005 and 2007.
There are probably enough clues in there to figure out who the Y Company is, but I haven't been able to.
So what is the problem with X's application for exempt status ?
....you have stated in a "Performance Excellence Plan" submitted with your application, that your goals and objectives include increasing public awareness of the Y Company's commitment to member employees, grow awareness of the Y Company brand in the members community and assist the Y
Company in regaining a "leadership position" in the members market. You also stated that you took part in a job fair as representatives of the Y Company to enable the Y Company to demonstrate its diverse workforce. As this court case indicated, promotion of a for-profit industry and/or business is a substantial nonexempt purpose and, even as a secondary activity, precludes exemption under section 501(c)(3) of the Code. Furthermore, as with the case involving the Better Business Bureau of Washington, D.C., regardless of the number of truly exempt activities, the non-exempt purpose of your organization is too substantial to ignore, especially when considering you are primarily funded by the Y Company.
It would be a little tedious for me to list them all but in its denial of exemption under 501(c)(3), the IRS suggests numerous times that X consider 501(c)(5) "Labor, agricultural, or horticultural organizations". Besides continuing to maintain that they qualify under (c)(3) they refuse to do that because:
In your response you have stated that applying for exemption under section 501(c)(5) is not an option, as this would result in you and your members violating the policies of the Y Company, as the Y Company does not allow its employees to establish labor organizations.
So enlightened as the Y Company may be on LGBT issues, they don't want no union organizers hanging around the shop.
I still want to figure out who the Y Company is. One other clue is that X indicated that it had joined the Business Coalition for Domestic Partners Benefits Tax Equity in 2006. The membership list is pretty impressive.
I'm going to ask some of my leftist friends what they would think about the X organization that celebrates the LGBT friendly policies of the union busting Y company.
____________________________________________________________________________
Private Letter Ruling 201120036
Nothing like a slightly sensational headline to grab their interest. This is probably not the work of the vast right wing conspiracy. I've made a desultory attempt to figure out the organization involved but haven't had any luck yet. I've included a link to the full text so maybe you can figure it out. The most frustrating part about private letter rulings is their anonymity. Of course that is the fun part because you can try to figure out who it is or just make something up. So here is the story.
Org X has been denied its application for exempt status. X's members are for the most part employees of Y. They are a little confused as to when they started :
Page 1 of the Form 1023 application states your organization, X, was formed as an unincorporated association on December 1, 1992, as this is when the Y Company formally recognized you as an employee caucus group. However, the document entitled "X Original Charter" indicates you were formed on July 20, 1995. visibility within the Y Company and beyond to its members, and to provide an official point of contact between its membership and Y, as well as with other gay, lesbian, bisexual, and transgender organizations external to the Y Company." You also indicate having the Y Company become the employer of choice for individuals of the lesbian, gay, bisexual, and transgender community where these individuals can work in a culture of equality and enjoy successful employment.
That type of institutional memory problem is common to membership organizations that evolve with different viewpoints on where it all began. It's probably better if you can keep it consistent within the Form 1023, but I don't think that was there major problem.
The organization has some significant achievements:
Past achievements made by you and additionally listed in the activity narrative and in documentation included with the application include working with the Y Company to implement Extended Household Healthcare Benefits in 1995, assisting in adding "sexual orientation" into the company's anti- discrimination policy in 2004, the granting of Domestic Partner benefits to lesbian, gay, bisexual, and transgender and straight employees (in Canada in 1994 and the United States in 1997), creating and deploying workplace guidelines to aid employees and their managers and becoming an advocate for lesbian, gay, bisexual, and transgender employees who have experienced harassment in the workplace. And in 2006 you joined the Business Coalition for Domestic Partner Benefits Tax Equity. Your organizing document also lists documentation to support similar activities in your "Goals" section.
As a result of your efforts within the Y Company, you, as well as the Y Company, have received several forms of external recognition. These include the Y Company being placed on several best places to work list for lesbian, gay, bisexual, and transgender employees and have received several corporate leadership awards from your efforts, specifically in 1996, 2003, 2005 and 2007.
There are probably enough clues in there to figure out who the Y Company is, but I haven't been able to.
So what is the problem with X's application for exempt status ?
....you have stated in a "Performance Excellence Plan" submitted with your application, that your goals and objectives include increasing public awareness of the Y Company's commitment to member employees, grow awareness of the Y Company brand in the members community and assist the Y
Company in regaining a "leadership position" in the members market. You also stated that you took part in a job fair as representatives of the Y Company to enable the Y Company to demonstrate its diverse workforce. As this court case indicated, promotion of a for-profit industry and/or business is a substantial nonexempt purpose and, even as a secondary activity, precludes exemption under section 501(c)(3) of the Code. Furthermore, as with the case involving the Better Business Bureau of Washington, D.C., regardless of the number of truly exempt activities, the non-exempt purpose of your organization is too substantial to ignore, especially when considering you are primarily funded by the Y Company.
It would be a little tedious for me to list them all but in its denial of exemption under 501(c)(3), the IRS suggests numerous times that X consider 501(c)(5) "Labor, agricultural, or horticultural organizations". Besides continuing to maintain that they qualify under (c)(3) they refuse to do that because:
In your response you have stated that applying for exemption under section 501(c)(5) is not an option, as this would result in you and your members violating the policies of the Y Company, as the Y Company does not allow its employees to establish labor organizations.
So enlightened as the Y Company may be on LGBT issues, they don't want no union organizers hanging around the shop.
I still want to figure out who the Y Company is. One other clue is that X indicated that it had joined the Business Coalition for Domestic Partners Benefits Tax Equity in 2006. The membership list is pretty impressive.
I'm going to ask some of my leftist friends what they would think about the X organization that celebrates the LGBT friendly policies of the union busting Y company.
Tuesday, June 17, 2014
OK 2010 This is Really Goodbye
Originally published on Passive Activities and Other Oxymorons on February 21st, 2011.
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In a previous post, I explained the need for occasional purges of material that does not transform itself into a full length post. Now I'll explain the Amazon ads. All hope of them being a means of monetizing has vanished. They are purely decorative. The only thing my readers, who apparently now number in the scores (If you have trouble remembering what a score is here is a little trick. Remember "Four score and seven years ago". Now subtract the year of the Declaration of Independence from the year of the Battle of Gettysburg. Then subtract seven. Then divide by four. Piece of cake.). do is come to the site. I have a little gadget next to where I type the blog and I can search Amazon and then click to move the link and image into the blog. I thought I would see what I got with Goodbye and up comes one of my favorite books. It's very short and I read it from time to time to cheer myself up.
As the title indicates this is the last of the 2010 material. I would have gotten it in sooner, but it got pushed aside by two much more interesting recent developments. One was about mercenaries and the other was about breasts. So how was blog housekeeping going to compete? With no further fanfare here is the last of 2010:
Private Letter Ruling 201051024
This was a ruling on exempt status. Exempt status ruling are a fairly rich source of tax humor, although it will be a while before somebody tops Free Fertility Foundation. I'm not inclined to mock this particular effort, although it does provide a slightly heightened reading on my bs detector.
You were incorporated under the nonprofit laws of the state of M on x. According to your Articles of Incorporation your purpose is to advance the religious beliefs, cultural traditions and lifestyles of four N churches (the "churches") by providing loans and other assistance for real estate purchases and other farm and business related purchases to members of the churches; to encourage savings and thrift and continue to be committed to Christian principles of operation by providing investment and borrowing opportunities to enhance economic social and spiritual well being of the N Brotherhood; and to operate exclusively for charitable, religious or educational purposes.
Investors are limited to residents of M who are members of the churches. Eligible individuals meeting the minimum-investment requirement ($10,000), up to a maximum of 25 new investors annually (to comply with the requirements for exemption from the security laws of the state of M), will be accepted on a first-come, first-serve basis.
You state that both your lending and borrowing activities will support your exempt purpose of advancing your religious beliefs, cultural traditions and lifestyles of the churches. You represent that central to your religious doctrine is a belief (i) in Biblical financial truths, including brotherly financial aid, responsibility for stability in family finances, the collective responsibility for all members of the church for each other's well being and personal stewardship and (ii) that deacons of your churches are called by God to oversee and, where applicable, alleviate the financial hardship of their church's members. You state that all of these principles lead to the rejection of laws that permit or facilitate the avoidance of responsibility, such as bankruptcy and insolvency laws.
Although you were initially funded by contributions from founding board members and received a church offering from each of the churches, you do not plan to engage in further fundraising activities. Your primary method of raising capital will be interest bearing loans from investors. Your sole source of income will be interest charged to borrowers. You plan to use the spread between the interest rates paid to investors and those charged to borrowers to pay all necessary future expenses.
The organization did not qualify for exempt status.
Articles 4(a) and (b) of your Articles of Incorporation states that you were formed to provide investment and borrowing opportunities. Providing investment and borrowing opportunities to members is not an exempt purpose described in section 501(c)(3).
Your primary purpose is to operate a trade or business, a lending institution which directly competes with commercial lending institutions. Your business practices are consistent with those of the industry in general. You will be funded by capital from investors. Your method of determining fees is similar to the method used by commercial lending institutions.
The minor mystery in this is what the organization expected to gain by its exempt status since it was planning on just breaking even and would not be getting charitable contributions. It may be there was some state law benefit. In my recent post on exempt organizations I note one that was trying to qualify so it could get a liquor license. Presumably that was not the plan with this one.
I'm not much of a scriptural scholar, but I'd like to know where the stuff about bankruptcy comes from. I think there is more in there about forgiving debts.
Humphrey E. Igberaese v. Commissioner, TC Memo 2010-284
This is really a run of the mill substantiation case. It concerns a host of deductions including charity.
Cash Charitable Contributions Igberaese asserts that he contributed $200 to his church in cash every week of the year, for a total of $10,400. He said that when he was in town, he would attend church and would personally donate the $200 to the church. He said that when he would be out of town, he would provide the cash to other church members in sealed envelopes to take to the church for him. He said he did not recall, even approximately, how often he provided the cash to other church members to donate for him. Nor did he remember the names of any of these members. He presented a printout of a computer spreadsheet consisting of the name of the church, the date of each contribution (each Sunday of the year), the amount of each contribution ($200), and the yearly total ($10,400). He testified that he made each entry around the time of that week's contribution.
Putting aside the formal substantiation requirements for charitable contributions, I'd advise people like Mr.Igberaeseke to work on their stories a little better. I don't have personal acquaintance with tax court judges, but I believe I've learned a bit about them from reading their opinions for the last thirty years. Among the things that I have surmised is that they are not idiots and that they live in the same world that I do. Some of them probably go to church and will therefore know that people who drop cash in the collection plate mostly still think that George Washington is our holiest president. If the ushers know who's face is on a C note, it is not from experience gained counting the collection
We do not find the evidence Igberaese introduced to be credible. As we discuss in connection with each deduction, Igberaese presented little beyond his own unpersuasive testimony and self-created documentation to corroborate his series of implausible deductions. Several of his explanations for the absence of further corroboration were also implausible.
We are similarly skeptical of Igberaese's documentary evidence, which shows little more than that he has written down his implausible assertions
Trout Ranch, LLC, et al. v. Commissioner, TC Memo 2010-283
This was a dueling expert case. The Trout Ranch had donated a conservation easement. The partnerships expert indicated that it was worth 2.1 million. He based the valuation on other easements sold in the area. The Tax Court was not greatly impressed :
In essence, in all three cases the conservation easements all but eliminated residential development. In stark contrast, the Trout Ranch CE restricted development from at least 40 residential lots to 22 lots (a reduction in potential development of 45 percent). We are simply not convinced that the value of a conservation easement that restricts development to at most one residential lot sheds any light on the value of a conservation easement that allows as many as 22 residential lots.
The Service had originally wanted to allow $485,000, but when it came to trial they decided to reduce that to 0. I mean, what the heck, why not say the property was worth more with the easement and have them pick up income ? The switch led to some fancy burden of proof discussion, which the Court indicated didn't matter because they were able to determine the true value.
The Tax Court came in at $560,000. We know that is the right answer, because its what the Tax Court said. The case is worth reading if you are interested in valuation issues. It's not great for my purposes as I couldn't find any good quotes.
Richard A. Frimml, et ux. v. Commissioner, TC Summary Opinion 2010-176
My tentative title for this was "Paint Your Horses". It is a hobby loss (Section 183) case. The IRS seems to be firmly convinced that people take care of animals much larger than themselves that appear to defecate copiously for fun. Go figure. The couple was raising American Paint Horses. The Tax Court ruled that they were in fact trying to make money.
Petitioners' knowledge at trial was extensive as it related to breeding and artificially inseminating Paint horses. Their knowledge included the genetics, the mechanics and the financial aspects of breeding. Even the horses aren't having any fun.
The worst thing about people who win hobby loss cases around horse breeding is that the Tax Court gives them extra points for heartlessness.
Petitioners made many business decisions regarding the purchase, care and sale of a number of Paint horses for their horse activity. Petitioners paid extensive amounts to care for Special when he was injured. On the other hand, petitioners decided to put down a 2-year-old foal that hurt her leg in a fence accident because the cost to heal her exceeded the projected price in selling her.
In case you are wondering what was so special about "Special".
They have identified semen production by Special as a potential future source of revenue.
This case is similar to that of Johnny L. Dennis TCM 2010-216 which I gave a brief mention. Besides doing a cost benefit analysis on the vet bills, the other thing that they have in common was not riding the horses themselves.
U.S. v. RUTH, JR., Cite as 106 AFTR 2d 2010-7443
The decision itself is about criminal procedural issues which are not of great interest to me. If you have an interest in such things check out Jack Townsend's blog. I read cases like this because the story behind the story is often interesting.
The conduct at issue began while Ruth and Pilkey were incarcerated at the Federal Correctional Institution in Fort Dix, New Jersey. The defendants submitted tax returns to the IRS claiming refunds in the names of fellow inmates for wages never earned and giving addresses where the inmates never lived. These inmates fell into three groups: (1) those who were aware of the fraud, (2) those who were not aware of the fraud and had instead provided their personal information in order to receive legal assistance from Ruth and Pilkey, and (3) those who testified they did not know the defendants. Ruth and Pilkey were able to avoid having to submit W-2 forms by misrepresenting that fellow prisoners were working at companies that had gone bankrupt. As part of the scheme, defendants obtained employer identification numbers for these bankrupt companies. To avoid detection by prison authorities, defendants enclosed envelopes addressed to the IRS within large envelopes sent to collaborators outside of prison. Defendants had the tax returns sent to mail-forwarding services who would then deliver the returns to their collaborators.
I became interested in accounting in part from reading stories about epic frauds. I doubt anybody will ever top Alfredo Reis. Read the book about him if you don't believe me. He convinced the British bank note printing company that printed the money issued by the Bank of Portugal that he worked for the bank and got them to print money for him. He used the money to buy stock in the Bank of Portugal which was the only entity that could prosecute counterfeiting. These fellow aren't in the same league, but given the adverse conditions they were working under (being in prison and all), they really achieved a lot. Of course you might expect that the IRS computers would catch them eventually. That's not exactly the way it turned out.
Defendants' scheme resulted in the IRS issuing refunds of tens of thousands of dollars. Eventually the IRS became suspicious of returns filed by persons in federal custody using the same type of form and listing the same employers and addresses. In May 2004, an inmate came forward who informed prison officials about the fraudulent tax scheme. Based on this information, prison officials searched the lockers of several inmates, including Ruth and Pilkey, and recovered records and material used to file the fraudulent tax returns.
So that is it for 2010. Goodbye 2010.
____________________________________________________________________________
In a previous post, I explained the need for occasional purges of material that does not transform itself into a full length post. Now I'll explain the Amazon ads. All hope of them being a means of monetizing has vanished. They are purely decorative. The only thing my readers, who apparently now number in the scores (If you have trouble remembering what a score is here is a little trick. Remember "Four score and seven years ago". Now subtract the year of the Declaration of Independence from the year of the Battle of Gettysburg. Then subtract seven. Then divide by four. Piece of cake.). do is come to the site. I have a little gadget next to where I type the blog and I can search Amazon and then click to move the link and image into the blog. I thought I would see what I got with Goodbye and up comes one of my favorite books. It's very short and I read it from time to time to cheer myself up.
As the title indicates this is the last of the 2010 material. I would have gotten it in sooner, but it got pushed aside by two much more interesting recent developments. One was about mercenaries and the other was about breasts. So how was blog housekeeping going to compete? With no further fanfare here is the last of 2010:
Private Letter Ruling 201051024
This was a ruling on exempt status. Exempt status ruling are a fairly rich source of tax humor, although it will be a while before somebody tops Free Fertility Foundation. I'm not inclined to mock this particular effort, although it does provide a slightly heightened reading on my bs detector.
You were incorporated under the nonprofit laws of the state of M on x. According to your Articles of Incorporation your purpose is to advance the religious beliefs, cultural traditions and lifestyles of four N churches (the "churches") by providing loans and other assistance for real estate purchases and other farm and business related purchases to members of the churches; to encourage savings and thrift and continue to be committed to Christian principles of operation by providing investment and borrowing opportunities to enhance economic social and spiritual well being of the N Brotherhood; and to operate exclusively for charitable, religious or educational purposes.
Investors are limited to residents of M who are members of the churches. Eligible individuals meeting the minimum-investment requirement ($10,000), up to a maximum of 25 new investors annually (to comply with the requirements for exemption from the security laws of the state of M), will be accepted on a first-come, first-serve basis.
You state that both your lending and borrowing activities will support your exempt purpose of advancing your religious beliefs, cultural traditions and lifestyles of the churches. You represent that central to your religious doctrine is a belief (i) in Biblical financial truths, including brotherly financial aid, responsibility for stability in family finances, the collective responsibility for all members of the church for each other's well being and personal stewardship and (ii) that deacons of your churches are called by God to oversee and, where applicable, alleviate the financial hardship of their church's members. You state that all of these principles lead to the rejection of laws that permit or facilitate the avoidance of responsibility, such as bankruptcy and insolvency laws.
Although you were initially funded by contributions from founding board members and received a church offering from each of the churches, you do not plan to engage in further fundraising activities. Your primary method of raising capital will be interest bearing loans from investors. Your sole source of income will be interest charged to borrowers. You plan to use the spread between the interest rates paid to investors and those charged to borrowers to pay all necessary future expenses.
The organization did not qualify for exempt status.
Articles 4(a) and (b) of your Articles of Incorporation states that you were formed to provide investment and borrowing opportunities. Providing investment and borrowing opportunities to members is not an exempt purpose described in section 501(c)(3).
Your primary purpose is to operate a trade or business, a lending institution which directly competes with commercial lending institutions. Your business practices are consistent with those of the industry in general. You will be funded by capital from investors. Your method of determining fees is similar to the method used by commercial lending institutions.
The minor mystery in this is what the organization expected to gain by its exempt status since it was planning on just breaking even and would not be getting charitable contributions. It may be there was some state law benefit. In my recent post on exempt organizations I note one that was trying to qualify so it could get a liquor license. Presumably that was not the plan with this one.
I'm not much of a scriptural scholar, but I'd like to know where the stuff about bankruptcy comes from. I think there is more in there about forgiving debts.
Humphrey E. Igberaese v. Commissioner, TC Memo 2010-284
This is really a run of the mill substantiation case. It concerns a host of deductions including charity.
Cash Charitable Contributions Igberaese asserts that he contributed $200 to his church in cash every week of the year, for a total of $10,400. He said that when he was in town, he would attend church and would personally donate the $200 to the church. He said that when he would be out of town, he would provide the cash to other church members in sealed envelopes to take to the church for him. He said he did not recall, even approximately, how often he provided the cash to other church members to donate for him. Nor did he remember the names of any of these members. He presented a printout of a computer spreadsheet consisting of the name of the church, the date of each contribution (each Sunday of the year), the amount of each contribution ($200), and the yearly total ($10,400). He testified that he made each entry around the time of that week's contribution.
Putting aside the formal substantiation requirements for charitable contributions, I'd advise people like Mr.Igberaeseke to work on their stories a little better. I don't have personal acquaintance with tax court judges, but I believe I've learned a bit about them from reading their opinions for the last thirty years. Among the things that I have surmised is that they are not idiots and that they live in the same world that I do. Some of them probably go to church and will therefore know that people who drop cash in the collection plate mostly still think that George Washington is our holiest president. If the ushers know who's face is on a C note, it is not from experience gained counting the collection
We do not find the evidence Igberaese introduced to be credible. As we discuss in connection with each deduction, Igberaese presented little beyond his own unpersuasive testimony and self-created documentation to corroborate his series of implausible deductions. Several of his explanations for the absence of further corroboration were also implausible.
We are similarly skeptical of Igberaese's documentary evidence, which shows little more than that he has written down his implausible assertions
Trout Ranch, LLC, et al. v. Commissioner, TC Memo 2010-283
This was a dueling expert case. The Trout Ranch had donated a conservation easement. The partnerships expert indicated that it was worth 2.1 million. He based the valuation on other easements sold in the area. The Tax Court was not greatly impressed :
In essence, in all three cases the conservation easements all but eliminated residential development. In stark contrast, the Trout Ranch CE restricted development from at least 40 residential lots to 22 lots (a reduction in potential development of 45 percent). We are simply not convinced that the value of a conservation easement that restricts development to at most one residential lot sheds any light on the value of a conservation easement that allows as many as 22 residential lots.
The Service had originally wanted to allow $485,000, but when it came to trial they decided to reduce that to 0. I mean, what the heck, why not say the property was worth more with the easement and have them pick up income ? The switch led to some fancy burden of proof discussion, which the Court indicated didn't matter because they were able to determine the true value.
The Tax Court came in at $560,000. We know that is the right answer, because its what the Tax Court said. The case is worth reading if you are interested in valuation issues. It's not great for my purposes as I couldn't find any good quotes.
Richard A. Frimml, et ux. v. Commissioner, TC Summary Opinion 2010-176
My tentative title for this was "Paint Your Horses". It is a hobby loss (Section 183) case. The IRS seems to be firmly convinced that people take care of animals much larger than themselves that appear to defecate copiously for fun. Go figure. The couple was raising American Paint Horses. The Tax Court ruled that they were in fact trying to make money.
Petitioners' knowledge at trial was extensive as it related to breeding and artificially inseminating Paint horses. Their knowledge included the genetics, the mechanics and the financial aspects of breeding. Even the horses aren't having any fun.
The worst thing about people who win hobby loss cases around horse breeding is that the Tax Court gives them extra points for heartlessness.
Petitioners made many business decisions regarding the purchase, care and sale of a number of Paint horses for their horse activity. Petitioners paid extensive amounts to care for Special when he was injured. On the other hand, petitioners decided to put down a 2-year-old foal that hurt her leg in a fence accident because the cost to heal her exceeded the projected price in selling her.
In case you are wondering what was so special about "Special".
They have identified semen production by Special as a potential future source of revenue.
This case is similar to that of Johnny L. Dennis TCM 2010-216 which I gave a brief mention. Besides doing a cost benefit analysis on the vet bills, the other thing that they have in common was not riding the horses themselves.
U.S. v. RUTH, JR., Cite as 106 AFTR 2d 2010-7443
The decision itself is about criminal procedural issues which are not of great interest to me. If you have an interest in such things check out Jack Townsend's blog. I read cases like this because the story behind the story is often interesting.
The conduct at issue began while Ruth and Pilkey were incarcerated at the Federal Correctional Institution in Fort Dix, New Jersey. The defendants submitted tax returns to the IRS claiming refunds in the names of fellow inmates for wages never earned and giving addresses where the inmates never lived. These inmates fell into three groups: (1) those who were aware of the fraud, (2) those who were not aware of the fraud and had instead provided their personal information in order to receive legal assistance from Ruth and Pilkey, and (3) those who testified they did not know the defendants. Ruth and Pilkey were able to avoid having to submit W-2 forms by misrepresenting that fellow prisoners were working at companies that had gone bankrupt. As part of the scheme, defendants obtained employer identification numbers for these bankrupt companies. To avoid detection by prison authorities, defendants enclosed envelopes addressed to the IRS within large envelopes sent to collaborators outside of prison. Defendants had the tax returns sent to mail-forwarding services who would then deliver the returns to their collaborators.
I became interested in accounting in part from reading stories about epic frauds. I doubt anybody will ever top Alfredo Reis. Read the book about him if you don't believe me. He convinced the British bank note printing company that printed the money issued by the Bank of Portugal that he worked for the bank and got them to print money for him. He used the money to buy stock in the Bank of Portugal which was the only entity that could prosecute counterfeiting. These fellow aren't in the same league, but given the adverse conditions they were working under (being in prison and all), they really achieved a lot. Of course you might expect that the IRS computers would catch them eventually. That's not exactly the way it turned out.
Defendants' scheme resulted in the IRS issuing refunds of tens of thousands of dollars. Eventually the IRS became suspicious of returns filed by persons in federal custody using the same type of form and listing the same employers and addresses. In May 2004, an inmate came forward who informed prison officials about the fraudulent tax scheme. Based on this information, prison officials searched the lockers of several inmates, including Ruth and Pilkey, and recovered records and material used to file the fraudulent tax returns.
So that is it for 2010. Goodbye 2010.
Wednesday, June 11, 2014
So You Want to be an Exempt Organization ?
Originally published on Passive Activities and Other Oxymorons on January 24th, 2011.
____________________________________________________________________________
Of all the areas I look for material in I find private letter rulings the most challenging. They tend to come in blocks on particular subjects and there will frequently be several virtually identical ones in a row. The most typical probably concern late S elections. I've yet to see one of those that could make a good story. My eyes light up, however, when I see a batch that have 501 as the relevant code section. They are frequently about organizations having their exempt status revoked, which is quite often a good story. The post I consider most amusing was a Tax Court decision on exempt status. I've still got a fairly large backlog of material to share with you, so I am going to give you a few of those rulings. I think I could make a whole post out of a couple of them, but I'm not going to get to them and they are starting to get a little stale.
Private Letter Ruling 201050041
My tentative title for this was "Sober House". It's great when you can mix business and pleasure, but its not so great to mix a business you own with a not for profit that you run. That was the problem with this group. Their mission was to provide substance abuse recovery services. The clients, however, lived in real estate owned by the people running the not for profit. If you are going to do something like that, which I don't recommend, you need to be scrupulous in your record keeping. They were less than perfect.
RA-1. There appears to much overlap in the activities of the two entities. In reviewing the expenses of the organization, it appears that expenses for the for-profit entity were paid by the non-profit entity. There were a great deal of checks paid and referenced to the Intensive OutPatient Program (TOP) which is a program of the CO-1.
There were several rental properties located in City, City, City and City which were acquired and owned by RA-1, members of his family and an employee of the organization. The employee was a Counselor of ORG and it was stated that RA-1 and Counselor, Counselor acquired the real estate together. According to RA-1, these properties were bought, maintained and used for the purpose for providing housing services to the clients of ORG.
The organization was unable to substantiate amount reported on its Form 990. In particular, it reported grants to individuals, but was unable to provide records showing who received grants, how much was received by each individual or how the recipients were determined. The organization was unable to provide client records which would detail services provided. Amounts paid to workers were often paid to relatives of RA-1 and no verification of work done for the exempt organization were provided.
The organization did not establish that the rent paid by ORG for the rental properties owned by RA-1 and his relatives was a fair market value rate. Furthermore, there were no documentation which detailed out who occupied the rental properties, how much was paid for rent and the time period of occupancy.
There were other indications of a lack of internal control. Accountant had a difficult time providing documents that were clear and understandable. There were a great deal of commingling of the revenue and expenses with the for-profit entity, as well as, expenses that could not be substantiated. .
There were Board of Directors listed on the Form 990, however, during the initial interview. VP stated "there were no Board of Directors officially, however decisions regarding the organization were made by himself and RA-1. According to him, the reason for this was that people didn't want to make time to participate.
So it could have all worked out if we were just a little more civic minded. I have to say that if you are a young CPA and somebody asks you to volunteer to be treasurer of something like this, run for the hills.
Private Letter Ruling 201050036
I thought there must be something serendipitous in this ruling being so close to the previous one. My tentative title for it was "Barroom Buddies". There is a lot more to Section 501 than 501(c)(3). You hear the most about 501(c)(3) because those are the ones that you can make deductible contributions to. There are, however, a plethora of 501 organizations that are just themselves exempt from tax to some greater or lesser extent. Among these are 501(c)(10) organizations which are :
Domestic fraternal societies, orders, or associations, operating under the lodge system—
(A) the net earnings of which are devoted exclusively to religious, charitable, scientific, literary, educational, and fraternal purposes, and
(B) which do not provide for the payment of life, sick, accident, or other benefits.
A real life example of a qualified 501(c)(10) organization is The Grand Lodge of Ancient Free and Accepted Mason of North Carolina. The get the benefit of being featured here by the luck of the draw in my poking around in GuideStar. I have little doubt that they are an example of the right way to qualify for 501(c)(10) status.
The subject of this PLR known as ORG is another matter entirely. Here is an interesting little sidelight on exempt status. Sometimes the motive for obtaining exempt status has little to do with the direct federal tax benefits. In the case of ORG there was the matter of a state law that held:
"in order for a licensee to sell intoxicating liquor outside city limits, a licensee must meet certain provisions such as having obtained an exemption from the payment of federal income taxes as provided in IRC sections 501(c)(3), 501(c)(4), 501(c)(5), 501(c)(7), 501(c)(8), 501(c)(10), 501(c)(19), or 501(d) of the United States Internal Revenue Code of 19XX,
Since DIR-1 inception with the ORG she has been able to sell liquor by the drink because of his organization's exemption from Federal income tax under IRC 501(c)(10).
During our interview on July 30, 20XX I asked DIR-1 why she joined the ORG, and her response was, "it allowed us to obtain a liquor license."
"The neighborhood tavern has been owned and operated by my family since 19XX DIR-1 took over the family business in 19XX." DIR-1 never transferred ownership of the building or any other assets to the parent organization. Instead, she pays the ORG Headquarters $ per year to lease the building and its contents.
ORG consists of 32 members, and all of them were asked to join by DIR-1. There are no requirements for membership, and there's only one class of membership. To become a member, each individual pays $, then fills out a card, providing such information as their address and phone number, and in return, the parent organization sends them an identification card indicating what post the member belongs to and the name of the member. New cards are issued every year. Upon becoming a member of ORG the individual receives their first drink for free, and ct off each additional drink. In July, dues are collected and remitted to the parent, ORG #1 in City, State. Additional members are recruited by current members or word of mouth.
The ruling has a fairly extensive discussion of how much of a fraternal bond is required for the organization to qualify. Part of the discussion goes as follows:
In National Union v. Marlow, 374 F. 775, 778 (1896): the court summed up the nature of a fraternal beneficiary society as follows: ".... a fraternal-beneficial society ... would be one whose members have adopted the same, or a very similar calling, avocation, or profession or who are working in union to accomplish some worthy object, and who for that reason have banded themselves together as an association or society to aid and assist one another, and to promote the common cause. The term "fraternal" can properly be applied to such an association, for the reason that the pursuit of a common object, calling or profession usually has a tendency to create a brotherly feeling among those who are thus engaged. As a general rule, such associations have been formed for the purpose of promoting the social, moral, and intellectual welfare of the members of such associations and their families, as well as for advancing their interests in other ways and in other respects...
The IRS found that ORG was not quite up to snuff:
ORG does not meet the requirements of an organization described in IRC section 501(c) (10). Members of ORG do not have a common fraternal bond. The members do not adopt the same or very similar calling, avocation, profession, or are working in unison to accomplish any worthy objective or common cause. ORG has not been operating for religious, charitable, scientific, literary, educational and fraternal purposes, nor has ORG devoted its net earnings exclusively to religious, charitable, scientific, literary, educational, and fraternal purposes. ORG is operating in a commercial manner which is not an exempt activity described under Internal Revenue Code section 501(c) (10).
In this circumstance, Merle Haggard not withstanding, barroom buddies are not the best kind.
Private Letter Ruling 201050033
Moving on to more salubrious pursuits we come to an "org' that was formed to support gymnastic activities. Perhaps it is consistent with the ethos of that sport (if that's what it is) to discourage slacking :
Your Bylaws state that to accomplish your purpose, "each family must fulfill their financial requirements and work their assigned number of hours at each fundraiser." Fundraising activities are held throughout the year, on almost a quarterly basis. Non-compliance results in a fee charge of $
Your Bylaws further provide that membership is open to "those persons who are parents or guardians of gymnasts who are members of the competitive teams and pre-teams at Gym" (the "members" or "member-parents"). The children of two of your directors participate in Gym and receive financial assistance from you to the extent they participate in fundraising activities.
In your application for exemption, you indicate that Gym is a for-profit organization. According to your Bylaws, the owner of Gym (the "owner") takes part in all meetings and "has a say" in your decision making. You are required to inform the owner of all pending major decisions, and the owner may be invited to submit input.
If a gymnast's family does not raise enough funds through the various fundraising activities to cover the costs of its portion of the block fees, the family must pay the difference in cash or not participate in the Gym competitive program. If payment is not received promptly, the gymnast is not allowed to compete at the following meet. You are entitled to any surplus funds on a gymnast's block fee account if the gymnast leaves the competitive program before the end of the competition season. Any surplus funds are used at your members' discretion.
In addition to the private benefit conferred to your member-parents through your fundraising activities, the equipment you own and loan to Gym for no charge results in more than incidental private benefit to the gym and its owner, because the for-profit gym gets the benefit of the use of the equipment for free. Purchasing such equipment for use by a non-exempt entity is not an exempt purpose.
Your primary purpose is raising funds to offset the costs of participation in the competitive program of Gym, a for-profit organization, for children of your member-parents. Members are credited with funds raised based upon participation in fundraising events. If members do not raise sufficient funds through fundraising activities, the parents pay the balance of the fees required for their child to participate in Gym's competitive program. You state that you do not provide financial or any other assistance to gymnasts outside of the Gym's competitive program.
Because of the direct financial benefits that your member-parents receive, your activities violate the prohibition against inurement, thereby preventing you from qualifying for exemption as an organization described in section 501(c)(3) of the Code. The requirement that each parent-member participate in your fundraising activities in direct proportion to the benefits they expect to receive causes a direct benefit to flow to these member-parents. Consequently, your earnings are being used to pay for benefits to specific individuals rather than to a charitable class, which allows your earnings to inure to the benefit of specific insiders, namely the parents of Gym's participants.
In addition, the owner of Gym sits on your board of directors and is also considered an insider. You have purchased equipment that is used for no charge by Gym, a commercial business. This transfer of your financial resources to the owners of Gym is in violation of the inurement proscription and is also sufficient to defeat exemption under section 501(c)(3) of the Code.
This bunch applying for exempt status could motivate me to launch a jeremiad about selfish narcissism but what do you expect from people who think subjectively judging kids running around and jumping constitutes a sport ?
____________________________________________________________________________
Of all the areas I look for material in I find private letter rulings the most challenging. They tend to come in blocks on particular subjects and there will frequently be several virtually identical ones in a row. The most typical probably concern late S elections. I've yet to see one of those that could make a good story. My eyes light up, however, when I see a batch that have 501 as the relevant code section. They are frequently about organizations having their exempt status revoked, which is quite often a good story. The post I consider most amusing was a Tax Court decision on exempt status. I've still got a fairly large backlog of material to share with you, so I am going to give you a few of those rulings. I think I could make a whole post out of a couple of them, but I'm not going to get to them and they are starting to get a little stale.
Private Letter Ruling 201050041
My tentative title for this was "Sober House". It's great when you can mix business and pleasure, but its not so great to mix a business you own with a not for profit that you run. That was the problem with this group. Their mission was to provide substance abuse recovery services. The clients, however, lived in real estate owned by the people running the not for profit. If you are going to do something like that, which I don't recommend, you need to be scrupulous in your record keeping. They were less than perfect.
RA-1. There appears to much overlap in the activities of the two entities. In reviewing the expenses of the organization, it appears that expenses for the for-profit entity were paid by the non-profit entity. There were a great deal of checks paid and referenced to the Intensive OutPatient Program (TOP) which is a program of the CO-1.
There were several rental properties located in City, City, City and City which were acquired and owned by RA-1, members of his family and an employee of the organization. The employee was a Counselor of ORG and it was stated that RA-1 and Counselor, Counselor acquired the real estate together. According to RA-1, these properties were bought, maintained and used for the purpose for providing housing services to the clients of ORG.
The organization was unable to substantiate amount reported on its Form 990. In particular, it reported grants to individuals, but was unable to provide records showing who received grants, how much was received by each individual or how the recipients were determined. The organization was unable to provide client records which would detail services provided. Amounts paid to workers were often paid to relatives of RA-1 and no verification of work done for the exempt organization were provided.
The organization did not establish that the rent paid by ORG for the rental properties owned by RA-1 and his relatives was a fair market value rate. Furthermore, there were no documentation which detailed out who occupied the rental properties, how much was paid for rent and the time period of occupancy.
There were other indications of a lack of internal control. Accountant had a difficult time providing documents that were clear and understandable. There were a great deal of commingling of the revenue and expenses with the for-profit entity, as well as, expenses that could not be substantiated. .
There were Board of Directors listed on the Form 990, however, during the initial interview. VP stated "there were no Board of Directors officially, however decisions regarding the organization were made by himself and RA-1. According to him, the reason for this was that people didn't want to make time to participate.
So it could have all worked out if we were just a little more civic minded. I have to say that if you are a young CPA and somebody asks you to volunteer to be treasurer of something like this, run for the hills.
Private Letter Ruling 201050036
I thought there must be something serendipitous in this ruling being so close to the previous one. My tentative title for it was "Barroom Buddies". There is a lot more to Section 501 than 501(c)(3). You hear the most about 501(c)(3) because those are the ones that you can make deductible contributions to. There are, however, a plethora of 501 organizations that are just themselves exempt from tax to some greater or lesser extent. Among these are 501(c)(10) organizations which are :
Domestic fraternal societies, orders, or associations, operating under the lodge system—
(A) the net earnings of which are devoted exclusively to religious, charitable, scientific, literary, educational, and fraternal purposes, and
(B) which do not provide for the payment of life, sick, accident, or other benefits.
A real life example of a qualified 501(c)(10) organization is The Grand Lodge of Ancient Free and Accepted Mason of North Carolina. The get the benefit of being featured here by the luck of the draw in my poking around in GuideStar. I have little doubt that they are an example of the right way to qualify for 501(c)(10) status.
The subject of this PLR known as ORG is another matter entirely. Here is an interesting little sidelight on exempt status. Sometimes the motive for obtaining exempt status has little to do with the direct federal tax benefits. In the case of ORG there was the matter of a state law that held:
"in order for a licensee to sell intoxicating liquor outside city limits, a licensee must meet certain provisions such as having obtained an exemption from the payment of federal income taxes as provided in IRC sections 501(c)(3), 501(c)(4), 501(c)(5), 501(c)(7), 501(c)(8), 501(c)(10), 501(c)(19), or 501(d) of the United States Internal Revenue Code of 19XX,
Since DIR-1 inception with the ORG she has been able to sell liquor by the drink because of his organization's exemption from Federal income tax under IRC 501(c)(10).
During our interview on July 30, 20XX I asked DIR-1 why she joined the ORG, and her response was, "it allowed us to obtain a liquor license."
"The neighborhood tavern has been owned and operated by my family since 19XX DIR-1 took over the family business in 19XX." DIR-1 never transferred ownership of the building or any other assets to the parent organization. Instead, she pays the ORG Headquarters $ per year to lease the building and its contents.
ORG consists of 32 members, and all of them were asked to join by DIR-1. There are no requirements for membership, and there's only one class of membership. To become a member, each individual pays $, then fills out a card, providing such information as their address and phone number, and in return, the parent organization sends them an identification card indicating what post the member belongs to and the name of the member. New cards are issued every year. Upon becoming a member of ORG the individual receives their first drink for free, and ct off each additional drink. In July, dues are collected and remitted to the parent, ORG #1 in City, State. Additional members are recruited by current members or word of mouth.
The ruling has a fairly extensive discussion of how much of a fraternal bond is required for the organization to qualify. Part of the discussion goes as follows:
In National Union v. Marlow, 374 F. 775, 778 (1896): the court summed up the nature of a fraternal beneficiary society as follows: ".... a fraternal-beneficial society ... would be one whose members have adopted the same, or a very similar calling, avocation, or profession or who are working in union to accomplish some worthy object, and who for that reason have banded themselves together as an association or society to aid and assist one another, and to promote the common cause. The term "fraternal" can properly be applied to such an association, for the reason that the pursuit of a common object, calling or profession usually has a tendency to create a brotherly feeling among those who are thus engaged. As a general rule, such associations have been formed for the purpose of promoting the social, moral, and intellectual welfare of the members of such associations and their families, as well as for advancing their interests in other ways and in other respects...
The IRS found that ORG was not quite up to snuff:
ORG does not meet the requirements of an organization described in IRC section 501(c) (10). Members of ORG do not have a common fraternal bond. The members do not adopt the same or very similar calling, avocation, profession, or are working in unison to accomplish any worthy objective or common cause. ORG has not been operating for religious, charitable, scientific, literary, educational and fraternal purposes, nor has ORG devoted its net earnings exclusively to religious, charitable, scientific, literary, educational, and fraternal purposes. ORG is operating in a commercial manner which is not an exempt activity described under Internal Revenue Code section 501(c) (10).
In this circumstance, Merle Haggard not withstanding, barroom buddies are not the best kind.
Private Letter Ruling 201050033
Moving on to more salubrious pursuits we come to an "org' that was formed to support gymnastic activities. Perhaps it is consistent with the ethos of that sport (if that's what it is) to discourage slacking :
Your Bylaws state that to accomplish your purpose, "each family must fulfill their financial requirements and work their assigned number of hours at each fundraiser." Fundraising activities are held throughout the year, on almost a quarterly basis. Non-compliance results in a fee charge of $
Your Bylaws further provide that membership is open to "those persons who are parents or guardians of gymnasts who are members of the competitive teams and pre-teams at Gym" (the "members" or "member-parents"). The children of two of your directors participate in Gym and receive financial assistance from you to the extent they participate in fundraising activities.
In your application for exemption, you indicate that Gym is a for-profit organization. According to your Bylaws, the owner of Gym (the "owner") takes part in all meetings and "has a say" in your decision making. You are required to inform the owner of all pending major decisions, and the owner may be invited to submit input.
If a gymnast's family does not raise enough funds through the various fundraising activities to cover the costs of its portion of the block fees, the family must pay the difference in cash or not participate in the Gym competitive program. If payment is not received promptly, the gymnast is not allowed to compete at the following meet. You are entitled to any surplus funds on a gymnast's block fee account if the gymnast leaves the competitive program before the end of the competition season. Any surplus funds are used at your members' discretion.
In addition to the private benefit conferred to your member-parents through your fundraising activities, the equipment you own and loan to Gym for no charge results in more than incidental private benefit to the gym and its owner, because the for-profit gym gets the benefit of the use of the equipment for free. Purchasing such equipment for use by a non-exempt entity is not an exempt purpose.
Your primary purpose is raising funds to offset the costs of participation in the competitive program of Gym, a for-profit organization, for children of your member-parents. Members are credited with funds raised based upon participation in fundraising events. If members do not raise sufficient funds through fundraising activities, the parents pay the balance of the fees required for their child to participate in Gym's competitive program. You state that you do not provide financial or any other assistance to gymnasts outside of the Gym's competitive program.
Because of the direct financial benefits that your member-parents receive, your activities violate the prohibition against inurement, thereby preventing you from qualifying for exemption as an organization described in section 501(c)(3) of the Code. The requirement that each parent-member participate in your fundraising activities in direct proportion to the benefits they expect to receive causes a direct benefit to flow to these member-parents. Consequently, your earnings are being used to pay for benefits to specific individuals rather than to a charitable class, which allows your earnings to inure to the benefit of specific insiders, namely the parents of Gym's participants.
In addition, the owner of Gym sits on your board of directors and is also considered an insider. You have purchased equipment that is used for no charge by Gym, a commercial business. This transfer of your financial resources to the owners of Gym is in violation of the inurement proscription and is also sufficient to defeat exemption under section 501(c)(3) of the Code.
This bunch applying for exempt status could motivate me to launch a jeremiad about selfish narcissism but what do you expect from people who think subjectively judging kids running around and jumping constitutes a sport ?
Thursday, November 10, 2011
You've Got Your Aliens and Then There's Your Real Aliens
This was originally published on PAOO on August 19th, 2010.
I made an offer in Facebook that I would write on a subject chosen by whoever would first comment on one of my blog posts. I hadn't expected that the winner would be someone who is almost as much of a tax nerd as I am. He asked me to comment on NSAR 1698, which was issued in 1992. It's one of those things that Research Institute uses the Freedom of Information Act to pry from the IRS so we have something to read after we have read all the rulings and procedures and decisions that are meant to be public. I haven't looked up what the acronym stands for (Nothing Sacred After Reagan ?Maybe). It doesn't really matter. It is a letter denying an organization exempt status.
My friend maintains that it should stand for the proposition that the IRS should be able to tell some people that they just can't have exempt status and really shouldn't have to give them a detailed explanation. Personally I disagree. Somebody who goes to the trouble of applying for exempt status is entitled to a good explanation. Furthermore, any policy which has the effect of placing really humourous material just waiting to be discovered is a good policy. If you think there is no humor in this area see my post on Free Fertility Inc.
So what was NSAR 1698 (whatever it might stand for) all about ? It seems that there is an advanced race known as the Pleiadians who are speaking to us through a particular person. She had started a business to disseminate their teachings and the proposed NFP was to carry the teachings further along. It is some pretty interesting stuff :
“The Pleiadians of are a collective of extraterrestrials from the star system the Pleiades. The Pleiadian culture is ancient and was 'seeded' from another universe of love long before Earth was created. They have formed a tremendous society which operates with love, with ideas and ideals that we are yet unfamiliar with. The Pleiadians call themselves our ancient family because many of us come here from the Pleiades to participate in the new experiment of Earth. The Pleiadians are now here as ambassadors from another universe to help Earth through her difficult transition from the third dimension to the fourth dimension and to assert each of us in our personal endeavors of awakening, remembering and knowing”.
Apparently though, the Pleidans are only speaking to one person. The IRS ruled that passing along the revelations could not be considered to constitute education within the meaning of 501(c)((3). They were also concerned that there was no change in control.
I actually found the IRS answer somewhat unsatisfying. It is also a bit of a disappointment that the ruling wasn't appealed. The Tax Court can be quite eloquent in addressing these type of things. At least I thought they were in Free Fertility. You'll be glad to know that failure to gain exempt status has not silenced the Pleiadians. You can read all about them at http://pleiadians.net/ (Notice its .net not .org).
It is interesting to note that the Pleidians have a specific instruction to not turn their teachings into a religion or worship the people who are channelling them. I don't know if they thought through how this might affect their channeller's chances of gaining exempt status.
I'm going to further extend my offer to write on anything that is requested by someone who comments on the blog. This one was fun anyway.
I made an offer in Facebook that I would write on a subject chosen by whoever would first comment on one of my blog posts. I hadn't expected that the winner would be someone who is almost as much of a tax nerd as I am. He asked me to comment on NSAR 1698, which was issued in 1992. It's one of those things that Research Institute uses the Freedom of Information Act to pry from the IRS so we have something to read after we have read all the rulings and procedures and decisions that are meant to be public. I haven't looked up what the acronym stands for (Nothing Sacred After Reagan ?Maybe). It doesn't really matter. It is a letter denying an organization exempt status.
My friend maintains that it should stand for the proposition that the IRS should be able to tell some people that they just can't have exempt status and really shouldn't have to give them a detailed explanation. Personally I disagree. Somebody who goes to the trouble of applying for exempt status is entitled to a good explanation. Furthermore, any policy which has the effect of placing really humourous material just waiting to be discovered is a good policy. If you think there is no humor in this area see my post on Free Fertility Inc.
So what was NSAR 1698 (whatever it might stand for) all about ? It seems that there is an advanced race known as the Pleiadians who are speaking to us through a particular person. She had started a business to disseminate their teachings and the proposed NFP was to carry the teachings further along. It is some pretty interesting stuff :
“The Pleiadians of are a collective of extraterrestrials from the star system the Pleiades. The Pleiadian culture is ancient and was 'seeded' from another universe of love long before Earth was created. They have formed a tremendous society which operates with love, with ideas and ideals that we are yet unfamiliar with. The Pleiadians call themselves our ancient family because many of us come here from the Pleiades to participate in the new experiment of Earth. The Pleiadians are now here as ambassadors from another universe to help Earth through her difficult transition from the third dimension to the fourth dimension and to assert each of us in our personal endeavors of awakening, remembering and knowing”.
Apparently though, the Pleidans are only speaking to one person. The IRS ruled that passing along the revelations could not be considered to constitute education within the meaning of 501(c)((3). They were also concerned that there was no change in control.
I actually found the IRS answer somewhat unsatisfying. It is also a bit of a disappointment that the ruling wasn't appealed. The Tax Court can be quite eloquent in addressing these type of things. At least I thought they were in Free Fertility. You'll be glad to know that failure to gain exempt status has not silenced the Pleiadians. You can read all about them at http://pleiadians.net/ (Notice its .net not .org).
It is interesting to note that the Pleidians have a specific instruction to not turn their teachings into a religion or worship the people who are channelling them. I don't know if they thought through how this might affect their channeller's chances of gaining exempt status.
I'm going to further extend my offer to write on anything that is requested by someone who comments on the blog. This one was fun anyway.
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