Thursday April 25, 2024

7.1.1 Types of Public Charities

Types of Public Charities

Traditional Public Charities:  Churches, schools, hospitals, medical research organizations and governmental units are "traditional" public charities.

Charities with Broad Public Support:  There are three ways a charity can show that it has broad public financial support.

Supporting Organizations:  Organizations that are classified as public charities because they actively function in a supporting relationship to another public charity are called "supporting organizations."

Organizational Test:  All charities must be organized exclusively for charitable purposes and must be operated exclusively for charitable purposes.

Creating the Organization:  The articles of incorporation must state the charitable purpose of the organization.

Dissolution of the Charity:  The articles of incorporation should provide for the dissolution of the charitable organization.

Operational Test:  The operational test examines the way an organization actually conducts its activities.

Private Inurement:  Charities are not allowed to give direct or indirect benefits to officers, directors and other people that are closely related to the charity.

Public Benefit:  While the ban on private inurement prevents charities from giving benefits to people that have a close relationship to the charity, the purpose of the "public benefit" requirement is to be sure that the charity's activities actually help a broad group of people - namely, the "public."

Private Benefit Leads to Loss of Tax Exemption:  In Rameses School of San Antonio, Texas v. Commissioner; the Tax Court determined that a charter school in Texas was not operated for exclusively charitable purposes and revoked its tax exempt status.

Legislative and Political Activity:  A charity generally may not devote any substantial time or activity to politics.

IRS Political Guidelines for Charities:  In response to election activity, the IRS periodically publishes political guidelines for charities.

Churches and Political Activity:  Churches and religious organizations may engage in limited political activity.
There are three main ways to qualify as a public charity. The first is to operate as a traditional public charity, the second is to have broad public financial support and the third is to actively function in a supporting relationship to another public charity. Sec. 509(a).

Traditional Public Charities

Churches

Neither the Tax Code nor Regulations provide a definition of what constitutes a church. There have been several court cases and Rev. Rul. 59-129 that list factors to be considered. (Rev. Rul. 59-129 was published in a digest format and thus does not specifically list the following criteria.) To be classified as a church and thus be exempt from taxation, an organization should meet most of the following criteria. The stated criteria include: a distinct legal existence, a recognized creed and form of worship, a definite and distinct ecclesiastical government, a formal code of doctrine and discipline, a distinct religious history, a membership not associated with any other church or denomination, a complete organization of ordained ministers ministering to their congregations and selected after completing prescribed courses of study, a literature of its own, established places of worship, regular congregations, regular religious services, Sunday schools for the religious instruction of the young and schools for the preparation of its ministers. If an organization can show that it meets most of the items listed above, then generally it will be classified as a church.

Schools

To qualify as a school, generally the following elements must be demonstrated: a regularly scheduled curriculum, a regular faculty and a regularly enrolled body of students in attendance at the place where the educational activities are regularly carried on. It must also be demonstrated that the purpose of the school is for the public benefit rather than a private benefit.

The Tax Cuts and Jobs Act (TCJA), signed into law on December 22, 2017, is the largest tax overhaul since 1986. Effective beginning January 1, 2018, Sec. 4968 imposes a 1.4% excise tax on the net investment income of private colleges and universities if they meet the "applicable educational institution" standard as defined in Sec. 25A(f)(2).

Applicable educational institutions include eligible education institutions:
  1. Which had at least 500 students in the preceding tax year and more than 50% of which were located in the United States;
  2. Which are not described in the first sentence of Sec. 511(a)(2)(B), namely a state colleges or universities; and
  3. With an aggregate fair market value of assets at the end of the preceding tax year of $500,000 per student. This excludes assets used directly in carrying out the institution's tax-exempt purposes.

The number of students (including for purposes of determining the number of students at a particular location) is based on the daily average number of full-time students attending the institution. Part-time students shall be taken into account on a full-time student equivalent basis.

Additionally, related organizations with any assets or net investment income are treated as owned by the "applicable educational institution."

An organization may be deemed a related organization if it:
  • Is controlled by the applicable educational institution;
  • Is controlled by one or more individuals which also control the applicable educational institution; or
  • Is a supporting organization as defined in Sec. 509(f)(3) or an organization defined in Sec. 509(a)(3)


    • Many private universities with large endowment funds will be subject to the excise tax. Some educational institutions may be able to plan effectively in order to ensure that the aggregate fair market value of their assets fall below $500,000 per student in order to avoid this excise tax.

    Hospitals

    The promotion of health has long been held to be a charitable purpose. To be classified as a nonprofit hospital, however, the hospital must demonstrate that it is operating for the benefit of the community. Rev. Ruls. 56-185 and 69-545 list factors that demonstrate a hospital is operating for a community benefit.

    Those factors are: the hospital must be organized as a nonprofit charitable organization for the purpose of operating a hospital for the care of the sick; it must not restrict the use of its facilities to a particular group of physicians and surgeons, such as a medical partnership or association, to the exclusion of all other qualified doctors; the board of trustees is composed of citizens in the community; the hospital operates a full-time emergency room and no one requiring emergency care is denied treatment; the hospital maintains an open medical staff, with privileges available to all qualified physicians; members of its active medical staff have the privilege of leasing available space in its medical buildings; it provides treatment of persons paying their bills with the aid of public programs like Medicare and Medicaid and the application of any surplus is used to improve facilities, equipment, patient care and medical training, education and research.

    Currently, one of the most important factors that demonstrate a hospital is operating to benefit the community is its emergency room that is available to all who seek care regardless of their ability to pay for such care. However, a hospital that does not have an emergency room will not be denied tax-exempt status if it shows that there are significant other factors that demonstrate the hospital promotes the health of a broad class of people. Rev. Rul. 83-157.

    Charities with Broad Public Support
    There are three ways a charity can show that it has broad public financial support. First, a charity can demonstrate that the total amount of support it receives from the public is at least one-third of the total support the charity has received over the prior four years. Support received from the public generally includes small contributions from individuals, foundations, trusts or corporations, support from governmental units, support from other public charities and membership dues. Small gifts are defined as 2% or less of total support. Sec. 509(a)(1), Reg. 1.170A-9(e)(2), Reg. 1.170A-9(e)(4).

    If a charity doesn't meet the first test, but has received at least 10% of its total support over the most recent four-year period from the public, it can try to demonstrate with facts and circumstances that it has broad public support and is working to attract even more. Sec. 509(a)(1), Reg. 1.170A-9(e)(3).

    Finally, a charity has broad public support if it can show that it receives more than one-third of its support from gifts, grants, fees and gross receipts from charitable activities and that its net investment income and unrelated income doesn't exceed one-third of its total support. Sec. 509(a)(2).

    Supporting Organizations
    Organizations that are classified as public charities because they actively function in a supporting relationship to another public charity are called "supporting organizations (SOs)." There are three types of SOs, Type I, Type II and Type III.

    An SO is a great option if a donor wants to make a significant gift, wants to remain involved with the use or investment of the gifted funds and wants the tax advantages of donating to a public charity rather than a private foundation. As its name suggests, an SO supports another public charity. Sec. 509(a)(3)(A). An SO must distribute money to, perform the functions of, or carry out the purposes of one or more public charities. The public charity that an SO supports is commonly referred to as a "supported organization" and must be designated by name, purpose or class (except that a Type III SO must designate by name the organization(s) it supports). An SO must satisfy the organizational and operational tests applicable to all charities, along with other requirements.

    Organizational Test
    All charities must be organized exclusively for charitable purposes and must be operated exclusively for charitable purposes. Sec. 501(c)(3). These requirements are sometimes referred to as the "organizational test" and the "operational test." An organization that does not meet these requirements is not a charity.

    Charitable purposes, sometimes referred to as "exempt" purposes, include religious, charitable, scientific, testing for public safety, literary or educational purposes and the prevention of cruelty to children or animals.

    The organizational test requires that the document that creates or organizes a charity - usually articles of incorporation (in the case of a nonprofit corporation) or declaration of trust (in the case of a charitable trust) - contain certain specific provisions. Specifically, the document that creates a charity must:
    1. Limit the charity from having any purpose that is not charitable;


    2. Require that all of the charity's assets be used for charitable purposes (i.e., they can never be used for any non-charitable purposes); and


    3. Not expressly allow the charity to do any non-charitable activities (except to an insubstantial degree).
    Reg. 1.501(c)(3)-1(b).

    Creating the Organization
    The articles of incorporation must state the charitable purpose of the organization. While no specific wording is required, the articles must include a statement of exempt purpose. The articles may not provide for the carrying on of an activity, no matter how incidental, that is not congruent with the organization's exempt purpose. If the articles do provide for the organization to engage in non-exempt activities, the charity will fail the organizational test even if the articles specify that the organization is created for a charitable purpose.

    Dissolution of the Charity
    The articles of incorporation should provide for the dissolution of the charitable organization. The articles should state that upon the dissolution of the organization, the assets will be distributed for the use of one or more charitable purposes. If the dissolution provision permits the assets to be distributed to or for the benefit of one or more shareholders, then the organizational test is failed and the organization will not be classified as a charitable organization.

    Operational Test
    The operational test examines the way an organization actually conducts its activities (as opposed to what its documents say about how it will operate). An organization qualifies as a charity only if it engages primarily in activities that accomplish its charitable purposes. Reg. 1.501(c)(3)-1(c). There are three different ways to measure whether or not a charity's activity accomplishes its charitable purposes. These three methods of measuring charitable activity are the ban on private inurement, the public benefit requirement and the prohibition on lobbying and candidate electioneering.

    Private Inurement
    Charities are not allowed to give direct or indirect benefits to officers, directors and other people that are closely related to the charity. This rule is called the ban on "private inurement." The reason for this ban is that a charity must operate for charitable purposes, and benefiting people closely related to the charity is viewed as inconsistent with those charitable purposes. Whether a person has a close relationship with a charity depends on the specific facts of any situation, but generally the founder, an officer or director or any other person in a position to exercise influence over the charity does have such a close relationship.

    Example 7.1.1 A

    Chester serves on the Board of Directors of Charnock University. The University has a budget surplus at the end of the year and wants to send Chester and his family on a cruise to thank him for his service to the Board. Also, Chester's mother is turning 80 this year and Chester is throwing her a party; he wants to hold the party at the University's banquet hall. Can Charnock University send Chester on a cruise and/or let him use its banquet hall for his family party?

    Because Chester is a director and has a close relationship with Charnock University, the ban on private inurement prevents the University from sending Chester on a cruise or letting him use its banquet hall for his family party. If Chester wants to go on a cruise he will have to pay for it himself and if he wants to use the University's banquet hall for his mother's birthday party he will have to pay reasonable rent to the University for his use of the hall.


    Excise Tax on Excess Compensation



    Under TCJA, for tax years beginning after December 31, 2017, Sec. 4960 imposes a 21% excise tax, of which the employer is liable, on remuneration in excess of $1 million or "excess parachute payments" to any "covered employee" of an applicable tax-exempt organization, including remuneration paid from related organizations.

    Definitions

    Applicable tax exempt organizations are defined in Sec. 4960(c)(1) as:
    1. Exempt from taxation under Sec. 501(a),
    2. A farmer's cooperative organization described in Sec. 521(b)(1),
    3. Income is excluded from taxation under Sec. 115(1), or
    4. A political organization described in Sec. 527(e)(1).

    Covered employee is defined in Sec. 4960(c)(2) as any current or former employee of an applicable tax-exempt organization if the employee:
    1. Is one of the five (5) highest compensated employees of the organization for the taxable year, or
    2. Was a covered employee of the organization (or any predecessor) for any preceding taxable year beginning after December 31, 2016.

    Remuneration occurs if no substantial risk of forfeiture exists. Remuneration is defined in Sec. 4960(c)(3)(A) as including wages as defined in Sec. 3401(a), except designated Roth contributions as defined in Sec. 402A(c), and shall include amounts required to be included in gross income under Sec. 457(f).

    "Excess parachute payments" are defined in Sec. 4960(c)(5)(C) as an amount equal to the excess of any "parachute payment" over the portion of the base amount allocated to such payment.
    Parachute payments means any payment in the nature of compensation (to or for the benefit of) a covered employee if
    1. Such payment is contingent on such employee's separation from employment with the employer, and
    2. The aggregate present value of the payments in the nature of compensation to (or for the benefit of) such individual which are contingent on such separation equals or exceeds an amount equal to three (3) times the base amount.

    The parachute payments do not include payments if it is:
    1. Described in Sec. 280G(b)(6) (relating to exemption for payments under qualified plans),
    2. Made under or to an annuity contract described in Sec. 403(b) or a plan described in Sec. 457(b),
    3. To a licensed medical professional (including a veterinarian) to the extent that such payment is for the performance of medical or veterinary services by such professional, or
    4. To an individual who is not a highly compensated employee as defied in Sec. 414(q).

    Amounts paid to licensed medical professionals are excluded, unless the remuneration is for services in any other capacity other than that of a licensed medical professional.

    If remuneration is received from multiple employers, each employer will remain liable for the portion of the excise tax equal to the amount of remuneration paid by the employer divided by the total amount of remuneration paid by all employers to the covered employee.

    Public Benefit
    While the ban on private inurement prevents charities from giving benefits to people that have a close relationship to the charity, the purpose of the "public benefit" requirement is to be sure that the charity's activities actually help a broad group of people - namely, the "public." If an organization's activities benefit only a single person or small or narrow group of people, it does not provide sufficient public benefits to qualify as a charity.

    Example 7.1.1 B

    Scholarship Services is formed to provide scholarships for children from the Bowers family in Cleveland, Ohio. Scholarship Services is not a charity because it does not provide a public benefit. Instead, Scholarship Services benefits only a small group of individuals.

    Example 7.1.1 C

    Cash for College is created in an effort to help high school students in Peoria, Illinois attend college. Cash for College provides scholarships for students in the Peoria area. Cash for College qualifies as a charitable organization because the benefit of the scholarships is to the public at large of Peoria and not a small class of persons.

    Example 7.1.1 D

    Education Experts is an organization created to provide scholarships to the children of current and former trustees of a charitable organization. Education Experts can argue that it provides a service to the public, and not a small or narrow group of persons. The benefit is provided to a potentially large class of students. The Service may counter that the benefit is provided to only a well-defined and relatively closed class of individuals with a close connection to the charitable organization. In the end, Education Expert's status as a charitable organization is questionable.

    Private Benefit Leads to Loss of Tax Exemption
    In Rameses School of San Antonio, Texas v. Commissioner; the Tax Court determined that a charter school in Texas was not operated for exclusively charitable purposes and revoked its tax-exempt status. The Rameses School in San Antonio was created in 1995. Patricia L. Fennell was the executive director, president and CEO of the school. The school received federal exempt status as an educational organization on May 9, 1997. It also was chartered by the Texas State Board of Education as a qualified school.

    The school operated with up to 100 students in 1999, most of whom were from minority groups in central San Antonio. Due to the school's failure to maintain adequate financial and academic records and a lack of compliance with Texas requirements, the State Board of Education revoked its charter on November 14, 2000. Subsequently, the IRS revoked the exempt status of Rameses School in 2004.

    A charitable organization must pass both an organizational and an operational test. The organizational test requires that it be organized for exempt purposes. If non-exempt purposes are more than an insubstantial part of activities, it does not qualify for exempt status. Reg. 1.501(c)(3)-1(b)(1)(i). The operational test requires that the organization "operate exclusively for exempt purposes" under Sec. 501(c)(3).

    In this case, Ms. Fennell did not have a functioning board with regular meetings. There were numerous examples of distributions of funds for personal purposes. The organization did not operate with a written budget. Finally, her salary was claimed to be $5,000 per month, but often she withdrew funds of approximately double that amount. Ms. Fennell clearly received public charity benefits that had been redirected to her private purposes. Because the Rameses School failed the private benefit test, its tax-exempt status was revoked.

    Legislative and Political Activity
    A charity generally may not devote any substantial time or activity to politics. This is because attempting to influence legislation or participating or intervening in political campaigns on behalf of or against any candidate for public office is perceived as inconsistent with charitable purposes. A charity that engages in political activity or electioneering may lose its exempt status or be subject to excise taxation. An expenditure made for a political campaign purpose is subject to a 10% excise tax of the expenditure amount. Managers having knowledge of the contribution may be subject to a 2% penalty. If electioneering continues, the charity may face an additional tax of 100% and managers an additional tax of 50% of the expenditure amount. However, a charity can engage in political activity when there is specific legislation that directly affects the charitable activity of that charity.

    Example 7.1.1 E

    Family Charity spends $2 million (30% of its cash resources) on television advertisements supporting the election of Fred Fam, who promises to promote family values in office. Family Charity may lose its exempt status and could be subject to a $200,000 excise tax and $2 million excise tax if its actions are not corrected. Family Charity's managers could be subject to penalties ranging from $50,000 to as much as $1 million of the expenditure amount.

    IRS Political Guidelines for Charities
    In response to election activity, the IRS periodically publishes political guidelines for charities. Since America is a nation with a First Amendment right to speak, many charities perform a valuable function by sharing information with friends that applies to a particular charitable purpose. Generally, this sharing of information is both acceptable and beneficial for the nation.

    However, to clarify the limits for public charities the IRS has published guidelines on elections in Rev. Rul. 2007-41. This IRS guide provides multiple examples that explain the election rules for charities. Essentially, charities are permitted to exercise their First Amendment rights to speak out on issues, but are not permitted to intervene and officially support a candidate for a specific elected office.

    Voter Education. Many charitable organizations encourage their friends to exercise the right of Americans to vote in an election. Voter education, including preparation and distribution of voter guides, may be conducted in a nonpartisan manner.

    Endorsements. Generally, officials from a charity have a right to speak out in a private capacity and endorse a candidate for office. However, they are not permitted to endorse candidates in their official capacity, since that may suggest that the public charity is endorsing a candidate. For example, a leader of a charitable organization may allow his or her name to be used in an endorsement of a candidate, but that must be private and may not be done in the official publication of the charitable organization.

    Speaking at Events. Candidates may be invited to appear and speak at events sponsored by charities. There are two circumstances in which that is permitted. First, if all candidates are invited to a forum and have equal opportunity to speak, then the discussion is permitted. In addition, a candidate who is qualified to speak on a particular topic may address a group at a specific charity, provided that he or she does not ask for votes, mention the election or fundraise at the event. The charity may not host a candidate for the specific purpose of endorsing or fundraising for one candidate.

    Introductions of Candidates. On many occasions, candidates will appropriately attend charitable events. It is permitted for the charity to welcome and mention the candidate by name. However, the charity is not to refer to the election or the candidacy of the visitor during the welcome. The charity also may not ask for support or raise funds for the candidate.

    Website Links. With the increasing use of the Internet, nearly all candidates have a website. Charities are urged to exercise great caution in linking to websites of candidates. The charity is responsible for the content and should not link to a website in a manner that suggests it is favoring or endorsing a particular candidate.

    Churches and Political Activity
    Churches and religious organizations may engage in limited political activity. IRS Publication 1828 - Tax Guide for Churches and Religious Organizations - specifies several examples of what may or may not be done.

    Permitted Activities

    A church may sponsor a voter registration drive. A church pastor may personally support and even endorse a candidate, so long as it is made clear that that is a personal endorsement. If a church desires to attempt to influence public policy, it is only permissible if the effort is an "insubstantial" part of the church's budget. Generally, insubstantial is believed to be less than 5% of budget.

    Example 7.1.1 F

    Church of the Saints registers voters of all parties in the fellowship hall after Sunday service. Pastor Sam tells several parishioners attending the church fall festival that he plans to vote for Candid Candidate. Church of the Saints prepares a flier that promotes adoption policy and sends it to all parishioners. The flier costs the church $50 (less than 5% of its budget) to reproduce and send to its members. All of Church of the Saints and Pastor Sam's activities are permissible.

    Prohibited Activities

    There are several activities that are not permitted. A minister or church leader is not permitted to endorse a candidate publicly in the church meeting, or to endorse a candidate in a church newsletter or publication. In addition, if a candidate is permitted to speak, the candidate may not be given preference or allowed to campaign during that presentation. Finally, a church may not distribute a voter guide that shows obvious bias toward a specific candidate.

    Potential Penalties

    There are several adverse potential results for a church that violates the campaigning rules. First, it could be subject to an IRS audit. Second, there is an excise tax on amounts spent to support a candidate in violation of the rules. See the discussion above on excise taxation for legislative and political activity. Third, a church that engages in repeated or major violations could even lose exempt status. Fourth, the adverse publicity of an IRS inquiry could cause the church to lose "its ability to witness to the community."

    Private Letter Rulings

    PLR 200106015 Nonprofit Corporation Qualifies as Religious Order:   X is a nonprofit corporation organized under the laws of State Y. The organization has requested a ruling regarding whether it is a "religious order" for purposes of the Code. Rev. Proc. 91-20 dictates the Service's analysis on such an issue. In particular, the Service must determine if the organization possesses certain characteristics.

    FSA 200110030 Exempt Hospital Must Show Actual Service to Community:   The Service was asked to advise whether a hospital whose stated policies are to provide healthcare services to indigents satisfies the requirements for income tax exemption under the Code. The Service first noted that the promotion of health is a charitable purpose under Sec. 501(c)(3). However, that mere finding does not guarantee exemption. Instead, there must be a finding that the hospital primarily benefits the community. This finding will depend on all the facts and circumstances.

    PLR 200333034 Charity's Internet Education Programs Will Not Affect Tax-Exempt Status:   M is a public charity that focuses solely on offering continuing education and training for Q industry professionals. Specifically, M helps educators stay current on issues affecting the Q industry. Traditionally, M offered its educational programs solely "on site." However, M needs to adapt its educational programs in accordance with the changing conditions in the Q industry. One such adaptation involved M's web site.

    PLR 200427031 Gain from Sale of Frat House Not Taxable:   Fun Fraternity was organized and operated as a social club under Sec. 501(c)(7) of the tax code. In furtherance of its exempt purposes, Fun Fraternity purchased Fraternity House. Fun Fraternity used Fraternity House as the home and principal office of Fun Fraternity.

    PLR 200436019 Charity Exempt from Filing Form 990:   Charity, a Sec. 501(c)(3) organization, is a state-created entity. Charity operates Hospital, which is also a Sec. 501(c)(3) organization. Charity's primary mission is to provide medical and hospital care to residents of City. Its primary source of revenue is generated from patient services.

    PLR 200502044 Street Church Not Exempt:   In this ruling, a pastor and two other individuals were directors of a nonprofit religious corporation. It was organized to "preach and teach the word of God." The church did have services on Sunday mornings and Bible studies on Friday evenings. However, it did not have any affiliation with an organized body, the pastor had no formal training and most revenue was used for rehabilitation of church members, with minimal accounting and policy guidance.

    PLR 200511012 No Gas Tax Exemption for Home:   Taxpayer is a home for individuals with developmental disabilities. It is a qualified Sec. 501(c)(3) charity and operates a number of homes with three to six disabled persons in each home.

    PLR 200525020 Short-Term Care Facility More Like Bed and Breakfast:   Assistance for Care Givers (ACG) is an organization that seeks to obtain tax-exempt status. Bob is the president of ACG and owns the small farm on which ACG operates. Bob will lease the farm located in a rural area, to ACG.

    PLR 200528030 Charity Allowed to Distribute Assets to Supporting Organization:   Public Charity provides foster care residential programs for minor children. Public Charity proposes to gratuitously transfer some of its assets consisting of cash, publicly held stock, securities, mutual funds and unencumbered real estate to a supporting organization (SO) created for the benefit of Public Charity.

    PLR 200530028 Organization Qualifies as a Church:   Organization N is an exempt organization under Sec. 501(c)(3) and is described in Secs. 509(a)(1) and 170(b)(1)(A)(i). Under a private letter ruling, N has also been classified as a religious organization. N now seeks to qualify as a church under Secs. 509(a)(1) and 170(b)(1)(A)(i). In support of its application, N conducts many of the activities cited in American Guidance Foundation, Inc. v. United States, 490 F. Supp. 304 (D.D.C. 1980), which lists 14 factors that distinguish an organization as a church.

    PLR 200535029 Charity Does Not Meet Operational Test:   A faith-based ministry proposed to establish a facility that would house, clothe and provide education, employment training, spiritual empowerment, anger management and rehabilitation for individuals who are suffering from all forms of addiction. In its application for exemption, however, this ministry did not show any need for such a facility in the area that it planned to serve.

    PLR 200601030 Bonus Program Does Not Endanger Entity's Exempt Status:   L is a Sec. 501(c)(3) tax-exempt organization. L was created to increase education and research on scientific discoveries and inventions.

    PLR 200607022 Supporting Organization Acting as Affiliate of Governmental Unit Not Required to File Form 990:   A, a Sec. 509(a)(1) supporting organization, is a council that studies aging for governmental unit B. A requested a ruling that it is exempt from filing Form 990 under Rev. Proc. 95-48, Sec. 402(b).

    PLR 200614030 Capital Fund Does Not Jeopardize Exempt Status:   SO is tax-exempt under Sec. 501(c)(3) of the Code and classified as a supporting organization under Sec. 509(a)(3). SO supports NPF, a tax-exempt community college classified under Secs. 509(a)(1) and 170(b)(1)(A)(ii). NPF is located in an economically depressed area.

    PLR 200616036 Governmental Unit Affiliate Exempt from Filing Form 990:   Three counties of State S (S) created, through an intergovernmental agreement, G. G provides workforce development, job training and general employment services to the citizens of the three counties in S. G requested a ruling that it was not required to file Form 990.

    PLR 200622054 Exempt Organization is Governmental Unit Affiliate:   A is an organization described in Sec. 501(c)(6) of the Code. A received a previous ruling which held (1) the income of A is excludible from gross income under Sec. 115, (2) A is an instrumentality of the city, a political subdivision of the state and (3) charitable contributions to A are deductible by donors to the extent provided by Sec. 170.

    PLR 200716026 Creation of a Trade Group Will Not Affect Charity's Tax-Exempt Status:   C is tax-exempt under Sec. 501(c)(3). C's primary functions are diagnosing and treating disease, providing medical education, hosting medical symposiums and publishing various medical journals. C believes that its mission would best be served by creating D, a tax-exempt trade association under Sec. 501(c)(6).

    PLR 200818023 Organization that Issued Annuities Does Not Qualify for Tax Exempt Status:   B was formed as a nonprofit corporation in the State of C and applied for exemption under Sec. 501(c)(3). B's articles of incorporation described its purpose as sponsorship and support of world-wide mission and youth efforts. B's board of directors consisted of E and F, husband and wife.

    PLR 200822041 SO's Over 2% Ownership of Corporation Exempt from Excise Tax:   Charity, a Sec. 509(a)(3) Type III Supporting Organization in State Z, provides annual grants to fund a scholarship program operated by a community foundation. Three colleges and universities participate in the program which provides educational opportunities to students pursuing post-secondary education lacking sufficient resources to do so.

    PLR 200829048 IRS Revokes Nonprofit Exemption for Facilitating Private Benefit:   On date X, A filed Form 1023, an application for exemption from tax as a non-profit charitable organization under Sec. 501(c)(3) of the Internal Revenue Code. According to A's records, the main purpose of forming the ORG is "to collect donations for the starving people of Country."

    PLR 200842056 Exempt Status Revoked for Failure to Disclose Records To IRS:   Organization (ORG) is a Sec. 4947(a)(1) exempt trust under Sec. 501(c)(3). Husband (H) is Executive trustee and Wife (W) is Secretary of ORG. An IRS agent called ORG three times on three different days, each time leaving a voicemail message identifying himself, his agency and the purpose of the call.

    PLR 200908051 Loans to Board Members Disqualify Organization Sec. 501(c)(3) Status:   In 19XX, Founders BM1 and BM2 created a trust created for the purpose of establishing an organization ("Organization") described in Sec. 501(c)(3) and Sec. 509(a)(3).

    PLR 200915057 Women's Organization Tax-Exempt Status Revoked:   Organization is tax-exempt under Sec. 501(c)(3) and was formed immediately following Hurricane Katrina in 2005. Organization's administrative file states it was formed to assist women.

    PLR 201103025 Charity-Owned Corporation Granted Extension:   The Navy owned Building but closed it on Date 1. Agency and a third party agreed to redevelop the property as a cultural arts center. They created B, a tax-exempt Sec. 501(c)(3) organization, to raise funds and to operate the center.
    PLR 201110012 ORG Fails to Qualify for Exemption:   ORG was incorporated for "charitable, benevolent and educational purposes, or fostering national amateur sports competition" within the meaning of Sec. 501(c)(3). The primary activity of ORG would be "largely limited to receiving contributions and investment income and conducting activities in furtherance of... exempt purposes."
    PLR 201203032 Exemption of Affordable Housing Organization Revoked:   ORG was granted tax-exempt status in 19XX under Sec. 501(c)(3) and 509(a)(2). ORG was established for the purpose of engaging in activities that would provide affordable housing to low income individuals.
    PLR 201209007 IRS Revokes Exempt Status of Inactive ORG:   ORG was granted tax exempt status under Sec. 501(c)(3) in an advance ruling. ORG filed its initial 990, Return of Organization Exempt from Income Tax, for the tax year ending June 30, 20XX.
    PLR 201210042 Private Benefit - No Exemption:   ORG was incorporated in State B and organized exclusively for educational purposes in accordance with Sec. 501(c)(3). Specifically, ORG was organized to instruct and train individuals and the public for the purpose of improving or developing their capabilities as they relate to the United States Constitution.
    PLR 201215010 Charitable Hedge Fund Not Exempt:   ORG's purpose is to buy and sell stock and options to provide funding to other charities. All donations received will be "aggressively traded" and a percentage of the net proceeds from the trading will be given to other charitable organizations.
    PLR 201218022 Exempt Status Revoked for Failure to Report:   ORG received tax-exempt status under Sec. 501(c)(3) in January 20XX. ORG was incorporated to educate the public about the duties and responsibilities of immigration law enforcement agents and how they can assist agents.

    PLR 201219024 Reorganization Won't Affect Exempt Status:   ORG is tax-exempt under Sec. 501(c)(3) and classified as a public charity under Secs. 509(a)(1) and 170(b)(1)(A)(vi).

    PLR 201220005 Organization is Instrumentality of State:   Organization was created by a statute enacted by State's legislature to support three public schools that serve the needs of the hearing and visually impaired. The statute directs Organization to solicit and accept charitable contributions.
    PLR 201221023 ORG Denied Exemption:   ORG's purpose is to promote eco-friendly products by commercial service companies. ORG seeks to mitigate emissions through the purchase of carbon offsets via a partnership with Company, a for-profit retailer of carbon offsets.
    PLR 201230024 Organization Denied Exempt Status:   ORG was formed for the purpose of raising and distributing funds for the benefit of various youth organizations. To raise funds, ORG operates concession stands that are managed, stocked and supervised by N, a for-profit entity.

    PLR 201234029 Preservation Farm Sponsor Denied Exempt Status:   ORG was incorporated as a non-profit corporation under the laws of B for the purpose of being a sponsor of a preservation farm. ORG was created by E who paid a consulting company to help ORG incorporate and look for federal grant funds to apply for.

    PLR 201236033 Religious Organization Denied Exempt Status:   ORG was incorporated and formed "to declare and demonstrate the good news of Jesus' dominion over all creation and train others to do the same." To accomplish this purpose, ORG plans to establish and maintain sanctuaries for people and animals.

    PLR 201237019 Education ORG Denied Exemption:   ORG's purpose is to help unemployed individuals become employed by facilitating educational workshops that teach interviewing skills and other career tools. ORG was originally part of a for-profit business (H) started by F.

    PLR 201238032 IRS Revokes ORG's Tax Exempt Status:   ORG is recognized as a tax-exempt organization under IRC 501(c)(3). ORG's purpose is to promote and support educational opportunities for children and young adults in the United States of America.

    PLR 201240029 IRS Revokes ORG's Tax-Exempt Status:   ORG is recognized as a tax exempt organization under Sec. 501(c)(3). According to ORG's bylaws, the goal of ORG is to partner with other organizations and to provide health and human services to people struggling with issues pertaining to health, education, housing and unemployment in the Dallas area.

    PLR 201244021 ORG Denied Tax-Exempt Status:   ORG applied for tax-exempt status under Sec. 501(c)(3) of the Code. ORG submitted a Certificate of Incorporation along with the filing, but failed to provide its Articles of Incorporation.

    PLR 201245022 ORG That Produces Religious Materials Loses Exemption:   ORG is recognized as a tax-exempt organization under Sec. 501(c)(3). Its purpose is to produce religious books, films and video tapes for distribution to churches, schools and religious groups and to conduct seminars and retreats.

    PLR 201252027 Veterans Group Loses Tax-Exempt Status:   ORG is tax-exempt under Sec. 501(c)(19). ORG's purpose is to assist the ORG Chapter in all of its purposes and goals, both locally and nationally. ORG Chapter's purpose is to improve the relationship between military and civilian populations as well as maintain liaison with active personnel of the Armed Forces.
    PLR 201304011 Farmer's Market Not Tax-Exempt:   ORG was incorporated to create a gathering spot and opportunity for social interactions for area residents, to be a profitable outlet for local farmers and to provide a predictable selection of high quality, fresh, locally grown produce for customers.
    PLR 201307009 Organization Formed to Assist Disabled Individuals Is Denied Exemption:   ORG is organized to help individuals with psychiatric disabilities obtain and maintain competitive employment. F, initially listed as ORG's only governing body member and president, would serve as an independent contractor for D, a governmental division.
    PLR 201309015 Medical Research Group Loses Exemption:   FDN-1 and FDN-2 founded ORG with the exempt purpose of providing traditional and alternative medical services at little to no cost. FDN-1 and FDN-2 also created CO-1, a for-profit medical corporation.
    PLR 201310048 ORG Offering Financial Advice Denied Exemption:   ORG teaches married couples how to communicate more effectively and make wise financial decisions based on biblical principles. D is ORG's President and also the founder and President of for-profit company J. J provides software and training materials to financial planners.
    PLR 201313033 ORG Operating Football Team Denied Exempt Status:   B and C, husband and wife, owned and operated a for-profit amateur minor league football team. They later voluntarily converted the for-profit into a non-profit, keeping the same ownership and same name.
    PLR 201314046 ORG Formed to Pay for Widow's Home Denied Exemption:   B became disabled following a car accident. B founded ORG to construct a smart home where she will reside. Her life dream was to develop a smart home to accommodate disability related conditions. B began constructing the smart home but depleted her savings in the process.
    PLR 201315031 Ranch Furthers Trust's Exempt Purpose:   Trust was established to support certain religious organizations and for general charitable purposes. Trust was later converted to a private foundation. Trust acquired the Ranch property to facilitate charitable programs. The Ranch is used to carry out two activities: the Retreat and the Program.
    PLR 201319031 IRS Denies Exempt Status to Healthcare Research ORG:   ORG is applying for exemption under Section 501(c)(4). ORG is a membership association that provides its members access to limited medical indemnity benefits, discounts on products and services and information about health care and other topics.
    PLR 201321032 ORG's Tax-Exempt Status Revoked:   ORG was recognized as exempt under Section 501(c)(4). ORG owns and maintains common areas and a swimming pool. Membership in ORG is compelled based on fees that are mandated in a covenant to each member's property title.
    PLR 201425016 Easement Sale Won’t Jeopardize Club’s Exemption:   ORG is classified as a tax-exempt social club under Sec. 501(c)(7). ORG’s purpose is to own and operate a private club for golf and other leisure activities.

    PLR 201443021 For-profit & Nonprofit Partnership Fails IRS Test:   ORG’s sole founder and director, B, discovered a new hydroponics technology and developed the T system (patent pending). The T system is a soilless growing process that can run without conventional power.

    PLR 201619010 Amateur Racing Organization Denied Exempt Status:   Organization provides and promotes amateur stock car racing. It was formed as a tax-exempt Sec. 501(c)(3) for the purpose of benefiting racers, promoters and spectators of motorsports in R.

    PLR 201629009 Aspiring Social Club Denied Exemption:   Organization requested recognition of exemption from federal income tax under Sec. 501(c)(7). Organization was formed as a corporation for the purposes of providing a meeting place and facilities for individuals with common interests in hunting, fishing, trap shooting, boating, and other lawful sports, aiding in the protection of fish, bird and game and providing recreation, entertainment and instruction to its members.

    PLR 201719018 Cancer Group's Pet Therapy Program Furthers Charitable Purposes:   Institute is a Sec. 501(c)(3) organization created for the purpose of conducting oncology research and education and advancing medical diagnosis, prevention and treatment of malignant tumors and other diseases.

    PLR 201741020 Change in Org's Activities Leads to Revocation of Exempt Status:   Center was formed as a Sec. 501(c)(3) public charity. Center's original purpose was to provide improved and advanced education programs to educational centers, institutions and agencies and to receive and administer financial support, assistance and grants to new or ongoing educational programs.

    PLR 201804005 Charity Granted Extension to Revoke Lobbying Election:   X (formerly known as Y), V and W are exempt from income tax under Sec. 501(c)(3) and are organized as public charities under Sec. 509(a). V and W are separate corporations with overlapping directors.

    PLR 201810011 Umpires' Nonprofit Strikes Out:   Organization is an unincorporated association that represents umpires in the state of X. Members of Organization perform umpire services for high school softball and baseball games.

    PLR 201835012 Athletic Organization Denied Exemption:   Organization applied for tax exempt status under Section 501(c)(3). In its articles of incorporation, Organization states that its purposes are exclusively charitable.

    PLR 201838008 Wedding Group Denied Tax-Exempt Status:   Organization applied for tax exempt status under Sec. 501(c)(3) as a nonprofit corporation. In its articles of incorporation, Organization did not state its purpose.

    PLR 201841008 IRS Denies Exemption to Business Corporation:   Organization was formed as a business corporation under the laws of the state of C. Organization's specific purposes include bringing an end to child slavery, assisting malnourished or ill children, providing educational funding for children, providing micro-financing for families to start small businesses and providing funding for caretakers to obtain higher education.

    PLR 201935013 Charitable Remainder Trust Denied 501(c)(3) Status:   Trust applied for tax-exempt status under Sec. 501(c)(3). Trust was formed as a charitable remainder trust (CRT). E funded the trust with closely-held securities and is co-trustee with F. The trust document states that Trust is a FLIP charitable remainder unitrust (CRUT).

    PLR 50-09822 Private and Community Foundation Grants to Lobbying Charities:   Charitable organizations are generally prohibited from participation in lobbying. There is an exception for charities if the lobbying is "an insubstantial part" of the exempt entity's activities. Generally, allocating less than 5% of budget to lobbying is considered insubstantial.

    Related Topics on Types of Public Charities

    Rameses School:    In Rameses School of San Antonio, Texas v. Commissioner; T.C. Memo. 2007-85; No. 23228-04x (10 Apr 2007), the Tax Court determined that a charter school in Texas was not operated for exclusively charitable purposes and revoked its tax-exempt status.

    Asmark:    In Asmark Institute v. Commissioner; T.C. Memo. 2011-20; No. 30238-07X (23 Jan 2011), the Tax Court denied tax-exempt status to an organization on the grounds that it was primarily commercial.
    Hartshorn:    In United States v. Kevin Hartshorn; No. 12-4104 10th Cir. (2014), the Court upheld a District Court injunction that determined the defendant’s church, the Church of Compassionate Service (CCS), to be an abusive tax shelter.

    Caricci:    In Michael T. Caracci, et ux., et al. v. Commissioner, 118 T.C. No. 25, several cases involving the Sta-Home Health Agency conversion from a nonprofit to a for-profit were consolidated. Judge Laro determined that the conversion of the nonprofit Sta-Home entity to a for-profit did indeed result in Sec. 4958 excess benefit transactions for various Caracci family members.

    Association of Honest Attorneys:    In Association of Honest Attorneys v. Commissioner; No. 14562-15X; T.C. Memo. 2018-41 (3 Apr 2018), the Tax Court upheld an IRS revocation of exempt status. The Association of Honest Attorneys (AHA) founder and president used the entity revenue for personal expenses.

    Abovo:    In Abovo Foundation, Inc. v. Commissioner; No. 18673-15X; T.C. Memo. 2018-57 (30 Apr 2018), the Tax Court held a medical doctor's corporation was not a qualified Sec. 501(c)(3) charity.

    Salvation Navy:    David Valfer of Hartford, CT is a charitably minded person. He volunteers weekends at the Hartford Senior Center. His duties include handing out milk, replenishing paper goods and soap in the restrooms and setting up the video for seniors. Mr. Valfer incorporated the "Salvation Navy, Inc." and applied for exempt status under Sec. 501(c)(3).

    New Dynamics Foundation:    In New Dynamics Foundation v. United States; No. 99-197T (24 Apr 2006), the Court of Federal Claims determined that the New Dynamics Foundation was not a qualified tax-exempt organization.

    Caracci CA5th:    In Michael T. Caracci et al. v. Commissioner, No. 02-60912 (11 July 2006), the Fifth Circuit reversed a Tax Court decision assessing a penalty under the Sec. 4958 intermediate sanctions rules.

          Quiz-Basic



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