Tax Planning and Compliance for Tax-Exempt Organizations, Fifth Edition 2014 Cumulative Supplement

CHAPTER 2

Qualifying Under IRC § 501(c)(3)

§ 2.1 Organizational Test

(c) Inurement Clause

(e) Political Activities

*§ 2.2 Operational Test

*(b) Amount of Charitable Expenditures

(j) The Internet and Tax-Exempt Organizations

(k) Governance

*(l) Economic Substance (New)

§ 2.1 Organizational Test

(c) Inurement Clause

p. 31. Add at end of section:

The IRS has issued a number of private letter rulings in recent years that find that a nonprofit organization controlled by a board made up of related parties, or in some cases, one individual, or one lacking bylaws or “written policies setting forth the duties and responsibilities of your trustees” fails the “organizational test” and cannot qualify for tax exemption.¹

(e) Political Activities

p. 33. Add to footnote 28:

See also Priv. Ltr. Ruls. 201221025 and 201221029 that revoke exemption for a § 501(c)(4) social welfare organization because its training programs primarily benefited the interests of a political party and its candidates, rather than a community. See supplemental material for Chapter 6, page 143, that consider vagueness of the limitation on involvement with political candidates for civic welfare organizations.

§ 2.2 Operational Test

p. 36, last sentence before numbered list. Replace four with six.

p. 37. Add fifth and sixth items to the numbered list:

5. A nonprofit organization was deemed not to qualify as a charitable entity because it functioned as a professional society. Its proposed primary activities involved social ...