Introduction: An Indispensable Roadmap for the Complex Maze of Tax-Exempt Rules and Regulations xiii Chapter 1 Distinguishing Characteristics of Tax-Exempt Organizations 1 1.1 Differences between Exempt and Nonexempt Organizations 8 1.2 Nomenclature 10 1.3 Control 11 1.4 Role of the Internal Revenue Service 12 1.5 Suitability as an Exempt Organization 12 1.6 Start-Up Costs, Governance, Tax, and Financial Considerations 15 1.7 Choosing a Form for the New Exempt Organization 18 Chapter 2 Qualifying Under IRC §501(c)(3) 23 2.

1 Organizational Test 25 2.2 Operational Test 31 Chapter 3 Public Charities 57 3.1 Distinctions Between Public and Private Charities 58 3.2 "Inherently Public Activity" and Broad Public Support: §509(a)(1) 59 3.3 Community Foundations 72 3.4 Service-Providing Organizations: §509(a)(2) 81 3.5 Difference Between §509(a)(1) and §509(a)(2) 83 3.6 Supporting Organizations: §509(a)(3) 91 3.

7 Testing for Public Safety: §509(a)(4) 106 Chapter 4 Religious Organizations 107 4.1 Characteristics of Religious Organizations 108 4.2 Churches 112 4.3 Religious Orders 125 4.4 Religious and Apostolic Associations 126 Chapter 5 Charitable Organizations 129 5.1 Relief of the Poor 131 5.2 Promotion of Social Welfare 136 5.3 Lessening the Burdens of Government 146 5.

4 Advancement of Religion 149 5.5 Advancement of Education and Science 149 5.6 Promotion of Health 150 5.7 Cooperative Hospital Service Organizations 170 Chapter 6 Other Charitable Organizations Qualifying Under IRC §501(c)(3) Charitable Purposes 171 6.1 Educational Purposes 172 6.2 Literary Purposes 186 6.3 Scientific Purposes 187 6.4 Testing for Public Safety 191 6.

5 Fostering National or International Amateur Sports Competition (But Only If No Part of Its Activities Involves the Provision of Athletic Facilities or Equipment) 192 6.6 Prevention of Cruelty to Children or Animals 194 Chapter 7 Civic Leagues, Other Nonprofits, and Social Welfare Organizations Exempt Under IRC §501(c)(4) 195 7.1 Comparison of (c)(3) and (c)(4) Organizations 197 7.2 Qualifying and Nonqualifying Civic Organizations 204 7.3 Local Associations of Employees 211 7.4 Neighborhood and Homeowner''s Associations 212 7.5 Disclosures of Nondeductibility 216 Chapter 8 Governmental Units, Component-Created Entities, and Title-Holding Corporations 225 8.1 Governmental Units 225 8.

2 Political Subdivisions 228 8.3 Integral Parts 229 8.4 Eligibility for Obtaining and Benefits/Detriments of Holding IRC §501(c)(3) Tax-Exempt Status 231 8.5 Instrumentalities 233 8.6 Affiliates 237 8.7 IRC §501(c)(2) Title-Holding Corporations 238 8.8 IRC §501(c)(25) Title-Holding Corporations 243 Chapter 9 Private Inurement and Intermediate Sanctions 245 9.1 Defining Inurement 248 9.

2 Salaries and Other Compensation 250 9.3 Setting Salary 253 9.4 Housing and Meals 255 9.5 Purchase, Lease, or Sale of Property or Services 256 9.6 Loans and Guarantees 258 9.7 For-Profit to Nonprofit and Vice Versa 258 9.8 Services Rendered for Individuals 259 9.9 Joint Ventures 261 9.

10 Intermediate Sanctions 262 Chapter 10 Private Foundations--General Concepts 277 10.1 Why Private Foundations Are Special 277 10.2 Special Rules Pertaining to Private Foundations 279 10.3 Application of Taxes to Certain Nonexempt Trusts 291 10.4 Termination of Private Foundation Status 293 Chapter 11 Excise Tax Based on Investment Income: IRC §4940 317 11.1 Formula for Taxable Income 318 11.2 Net Capital Gains 327 11.3 Deductions from Gross Investment Income 333 11.

4 Tax-Planning Considerations 338 11.5 Foreign Foundations 341 11.6 Timely Payment of Excise Tax 343 11.7 Tax on Private Colleges and Universities 344 11.8 Exempt Operating Foundations 345 Chapter 12 Self-Dealing: IRC §4941 347 12.1 Definition of Self-Dealing 348 12.2 Sale, Exchange, or Lease of Property 352 12.3 Loans 362 12.

4 Compensation 365 12.5 Transactions That Benefit Disqualified Persons 372 12.6 Payments to Government Officials 380 12.7 Sharing Space, People, and Expenses 381 12.8 Indirect Self-Dealing 384 12.9 Property Held by Fiduciaries 385 12.10 Issues Once Self-Dealing Occurs 389 Chapter 13 Minimum Distribution Requirements: IRC §4942 395 13.1 Assets Used to Calculate Minimum Investment Return 397 13.

2 Measuring Fair Market Value 404 13.3 Distributable Amount 410 13.4 Qualifying Distributions 412 13.5 Private Operating Foundations 433 13.6 Satisfying the Distribution Test 443 Chapter 14 Excess Business Holdings and Jeopardizing Investments: IRC §§4943 and 4944 451 14.1 Excess Business Holdings 451 14.2 Jeopardizing Investments 462 14.3 Program-Related Investments 467 14.

4 Penalty Taxes 473 Chapter 15 Taxable Expenditures: IRC §4945 479 15.1 Lobbying 481 15.2 Voter Registration Drives 486 15.3 Grants to Individuals 486 15.4 Grants to Public Charities 498 15.5 Grants to Foreign Organizations 509 15.6 Expenditure Responsibility Grants 512 15.7 Noncharitable Expenditures 525 15.

8 Excise Taxes Payable 526 Chapter 16 IRS Filings, Procedures, and Policies 529 16.1 IRS Tax Exempt and Government Entities Division 530 16.2 IRS Determination Process 534 16.3 Annual Filing of Forms 990 545 16.4 Reporting Organizational Changes to the IRS 555 16.5 Weathering an IRS Examination 559 16.6 When an Organization Loses Its Tax-Exempt Status 566 Chapter 17 Unrelated Business Income 567 17.1 IRS Scrutiny of Unrelated Business Income 572 17.

2 History of the Unrelated Business Income Tax 572 17.3 Consequences of Receiving UBI 573 17.4 Definition of Trade or Business 575 17.5 What Is Unrelated Business Income? 579 17.6 "Regularly Carried On" 580 17.7 "Substantially Related" 582 17.8 Unrelated Activities 587 17.9 The Exceptions 609 17.

10 Income Modifications 616 17.11 Calculating and Minimizing Taxable Income 627 17.12 Debt-Financed Property 635 17.13 Museums 642 17.14 Travel Tours 644 17.15 Publishing 645 Chapter 18 Relationships with Other Organizations and Businesses 649 18.1 Creation of a (c)(3) by a (c)(4), (5), or (6) 650 18.2 Alliances with Investors 655 18.

3 Corporate Subsidiary 660 18.4 Active Business Relationships 665 Chapter 19 Electioneering and Lobbying 669 19.1 Election Campaign Involvement 670 19.2 Voter Education vs. Candidate Promotion 676 19.3 Tax on Political Expenditures 681 19.4 Lobbying Activity of §501(c)(3) Organizations 691 19.5 Permissible Amounts of Lobbying 697 19.

6 Lobbying Limits for §501(c)(4), (5), (6), and Other Exempt Organizations 701 19.7 Advocacy and Nonpartisan Analysis 702 Chapter 20 Mergers, Reorganizations, and Terminations 705 20.1 Mergers and Other Combinations 705 20.2 Reorganizations 711 20.3 Terminations 714 Chapter 21 Deductibility and Disclosures 717 21.1 Overview of Deductibility 718 21.2 The Substantiation and Quid Pro Quo Rules 731 21.3 Valuing Donor Benefits 742 21.

4 Unrelated Business Income Aspects of Fund-Raising 746 Appendix 1: Labor, Agricultural, and Horticultural Organizations: §501(c)(5) 749 Appendix 2: Business Leagues: §501(c)(6) 761 Appendix 3: Social Clubs: §501(c)(7) 781 Appendix 4: Guides for Maintaining Exempt Status 799 Appendix 5: Brief Description of Tax Sanctions Applicable to Private Foundations 833 List of Exhibits 837 About the Authors 839 Index 841.