Planning Guide for the Law of Tax-Exempt Organizations: Strategies and Commentaries

Chapter 1 Form of Organization and Governance Principles 1

Basic Decision: Nonprofit or For-Profit 1

Location 2

Form of Organization 4

Name 8

Governing Board 9

Officers 14

Key Employees 17

Management Companies 17

Minutes 17

Other Documents 19

Corporate Governance Principles 20

Board Member Responsibilities and Duties 21

Protections against Personal Liability 24

Minimizing Board Member Liability 25

Watchdog Agencies 29

Chapter 2 Acquisition and Maintenance of Tax-Exempt Status 37

Nonprofit Organizations 37

Concept of Tax Exemption 37

Eligibility for Tax-Exempt Status 38

Categories of Tax-Exempt Organizations 38

Determining Appropriate Category of Tax Exemption 39

Concept of Recognition of Tax Exemption 41

Applying for Recognition of Tax Exemption 41

Legal Aspects of Form 1023 42

Bizarre Positions Taken by the IRS 48

Legal Aspects of Form 1024 50

Preparation of Applications 52

Reliance on Determination 53

Maintenance of Exempt Status 53

Material Changes 53

Changes in Form 54

Group Exemption 54

Chapter 3 Private Benefit 59

Overview of Private Benefit Law 59

Actions by Exempt Organizations 63

Issues, Strategies, and Commentaries 65

Conclusions (Reiterations) 78

Chapter 4 Public Charity and Private Foundation Classification 83

Law Basics 83

Glossary 84

Qualifying for and Maintaining Public Charity Status 86

Focus on Supporting Organizations 91

Terminations 99

Private Foundation Rules 102

Charitable Giving Rules 103

Donor-Advised Funds 104

Chapter 5 Advocacy Activities 107

Concept of Advocacy 107

Attempts to Influence Legislation 107

Participation in Political Campaign Activities 118

Political Organizations 119

Internet Activities 124

Other Forms of Advocacy 127

Chapter 6 Subsidiaries 131

Definition of Subsidiary 131

Determining Need for Subsidiary 132

Legal Form of Subsidiary 134

Bifurcation Basics 134

Tax-Exempt Subsidiaries 136

Taxable Subsidiaries 137

Subsidiaries in Partnerships 139

Tax Treatment of Revenue from Subsidiary 139

For-Profit Subsidiaries and Public Charity Status 141

Social Enterprise 142

Practical Operational Considerations 144

Chapter 7 Partnerships and Other Joint Ventures 149

Partnerships and Joint Venture Basics 149

Flow-Through Entities 150

Partnerships—Details 151

Limited Liability Companies—Details 154

Other Joint Ventures 158

Whole Entity Joint Ventures—Commentary 158

Ancillary Joint Ventures 161

Law-Imposed Joint Ventures 164

Look-Through Rule—Details 165

Chapter 8 Unrelated Business Rules 169

Law Basics 169

Perspectives 169

Unrelated Business Evaluation—Steps 171

Commerciality Doctrine 181

Chapter 9 Annual Information Returns 187

Law Basics 187

Forms 188

Glossary 189

Review of Form 990—A Law Perspective 193

Preparation of Form 990—A Law Perspective 195

State Law Filing Requirements 220

Internet Resources 222

Penalties 222

Commentaries 222

Chapter 10 Disclosure Requirements 235

Applications for Recognition of Tax Exemption 235

Annual Information Returns 236

Gift Substantiation Requirements 237

Quid Pro Quo Contributions 239

Disclosure by Noncharitable Organizations 240

Disclosure of Gifts of Property 243

Dispositions of Contributed Property 245

Appraisal Requirements 246

Offering of Information or Services 250

Personal Benefit Contracts 251

Tax Shelters 252

Prospective (Possible) Disclosure Requirements 254

Chapter 11 Planning in the Face of Difficult Court Opinions 261

Introduction: Evaluation of Court Opinions 261

Positive Court Opinion 263

Erroneous Court Opinions 265

Other Difficult Court Opinions 294

Chapter 12 The Legal Audit 327

Inventory of Basics 327

Corporate Governance 329

External Relationships 330

Tax-Exempt Status 330

Private Inurement Doctrine 331

Private Benefit Doctrine 332

Excess Benefit Transactions 333

Self-Dealing Rules 335

Actions by Organization 336

Public Charity Classification 336

Legislative Activities 339

Political Campaign Activities 341

Other Forms of Advocacy 342

Subsidiaries in General 343

Bifurcation Basics 343

Tax-Exempt Subsidiaries 343

Taxable Subsidiaries 344

Revenue from Subsidiary 344

Joint Ventures Basics 344

Joint Ventures—Other Elements 345

Unrelated Business Analysis 345

Commerciality Doctrine 346

Annual Information Returns 347

Disclosure Requirements 348

Court Opinions 350

Appendices

A Form 1023 351

B Form 1024 378

C Form 990 397

D Form 990-T 418

E Inventory of IRS Forms 423

F Inventory of Tax Penalties 424

G Other Bodies of Law 426

Table of Cases 428

Table of IRS Revenue Rulings 430

Table of IRS Private Determinations 431

Index 433