The Tax Law of Associations

Preface xxiii

Chapter One Associations, Society, and the Tax Law 1

§1.1 Introduction to Associations 2

§1.2 History and Evolution of Associations 4

§1.3 Role of Associations in Society 6

§1.4 Rationales for Associations’ Tax Exemption 8

§1.5 Forms of Associations 10

§1.6 Other Exempt "Associations": A Comparative Analysis 10

§1.7 Comparisons to Other Exempt Organizations 17

Chapter Two Tax Exemption for Business Leagues and Similar Organizations 19

§2.1 Concept of Tax Exemption 20

§2.2 Recognition of Tax Exemption 20

§2.3 Appropriate Exemption Category 21

§2.4 Business Leagues in General 23

§2.5 Legislative and Regulatory History 29

§2.6 Definition of Business 31

§2.7 Line-of-Business Requirement 32

§2.8 Membership Services 36

§2.9 Professional Organizations 37

§2.10 Disqualifying Activities 39

§2.11 Chambers of Commerce 48

§2.12 Boards of Trade 50

§2.13 Real Estate Boards 50

§2.14 Professional Football Leagues 51

§2.15 Application for Recognition of Exemption (Form 1024) 51

§2.16 Nonexempt Membership Organizations 51

Chapter Three Private Inurement, Private Benefit, and Excess Benefit Transactions 53

§3.1 Essence of Private Inurement 55

§3.2 Concept of Net Earnings 57

§3.3 Requisite Insider 58

§3.4 Types of Private Inurement 63

§3.5 Private Inurement and Associations 84

§3.6 Private Benefit Doctrine 86

§3.7 Private Benefit and Associations 89

§3.8 Excess Benefit Transactions 94

§3.9 Associations and Intermediate Sanctions 106

Chapter Four Lobbying and Political Activities 109

§4.1 Associations and Lobbying 109

§4.2 Lobbying Tax Law Rules 110

§4.3 Associations and Political Campaign Activities 121

§4.4 Public Advocacy Activities 122

§4.5 Political Activities Tax Law Rules 127

§4.6 Constitutionality of Statutory Scheme 128

§4.7 Associations’ Use of Political Organizations 129

Chapter Five Unrelated Business Rules 131

§5.1 Analytic Framework 132

§5.2 Definition of Trade or Business 133

§5.3 Fragmentation Rule 144

§5.4 Profit Motive Requirement 145

§5.5 Regularly Carried On Rule 147

§5.6 Related Business Rule 151

§5.7 Substantially Related Business Rule 152

§5.8 Advertising Activities 160

§5.9 Exceptions to Rules 166

§5.10 Unrelated Debt-Financed Income Rules 202

Chapter Six For-Profit Subsidiaries and Limited Liability Companies 209

§6.1 Fundamentals of For-Profit Subsidiaries 210

§6.2 Potential of Attribution to Parent 213

§6.3 Financial Considerations 216

§6.4 Asset Accumulations 219

§6.5 Subsidiaries in Partnerships 220

§6.6 Effect of For-Profit Subsidiaries on Public Charity Status 220

§6.7 Treatment of Revenue from Subsidiary 222

§6.8 Liquidations 225

§6.9 Associations and For-Profit Subsidiaries 226

§6.10 Limited Liability Companies 227

Chapter Seven Associations, Partnerships, and Joint Ventures 233

§7.1 Partnerships Fundamentals 233

§7.2 Tax Exemption Issue 237

§7.3 Joint Ventures Fundamentals 247

§7.4 Whole-Entity Joint Ventures 249

§7.5 Ancillary Joint Ventures 256

§7.6 Information Reporting 258

§7.7 Alternatives to Partnerships 259

Chapter Eight Association-Related Foundations 261

§8.1 Distinctions Between Public and Private Charities 262

§8.2 Organizations with Inherently Public Activity 264

§8.3 Publicly Supported Organizations—Donative Entities 267

§8.4 Publicly Supported Organizations—Service Provider Entities 272

§8.5 Comparative Analysis of Categories of Publicly Supported Charities 280

§8.6 Supporting Organizations 283

§8.7 Noncharitable Supported Organizations 295

§8.8 Association-Related Foundations 296

§8.9 Private Benefit Doctrine 305

Chapter Nine Charitable Giving and Fundraising 307

§9.1 Charitable Giving Rules in General 308

§9.2 Planned Giving 319

9.3 Corporate Sponsorship Rules 326

§9.4 Contribution Substantiation Rules 329

§9.5 Quid Pro Quo Contribution Rules 336

§9.6 Disclosures by Noncharitable Organizations 339

§9.7 State Fundraising Regulation 342

§9.8 Associations and Charitable Giving 352

Chapter Ten Annual Reporting and Disclosure Requirements 353

§10.1 Federal Tax Law Annual Reporting Requirements in General 354

§10.2 Federal Document Availability Requirements 367

§10.3 Disclosures Regarding Certain Information or Services 375

§10.4 State Law Requirements 376

§10.5 Specific Reporting Requirements of Associations 376

§10.6 Specific Reporting Requirements of Association-Related Foundations 381

§10.7 Unrelated Business Income Tax Return 382

Chapter Eleven Summary of Non–Tax Association Law 383

§11.1 Corporate Governance 384

§11.2 Board Member Responsibilities and Duties 389

§11.3 Board Member Liability 392

§11.4 Postal Law 396

§11.5 Federal Election Law 398

§11.6 Antitrust Law 404

§11.7 Securities Law 406

§11.8 Intellectual Property Law 408

§11.9 Employee Benefits Law 412

§11.10 Internet Law 420

§11.11 Management of Institutional Funds Act 422

§11.12 Other Laws 422

Appendices

Appendix A Sources of the Law 425

Appendix B Form 1024 433

Appendix C Form 4720 439

Appendix D Form 1023 445

Appendix E Form 990 447

Appendix F Form 990-T 455

Tables

Table of Cases 461

Table of IRS Revenue Rulings and Revenue Procedures Cited in Text 469

Table of IRS Private Determinations Cited in Text 473

Table of Cases Discussed in Bruce R. Hopkins' Nonprofit Counsel 475

Table of IRS Revenue Rulings and Revenue Procedures Discussed in Bruce R. Hopkins' Nonprofit Counsel 481

Table of IRS Private Determinations Discussed in Bruce R. Hopkins' Nonprofit Counsel 483

Table of IRS Private Letter Rulings, Technical Advice Memoranda, and General Counsel Memoranda 485

Index 491