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March 28, 2008
Final Regulations on Excess Benefit Transactions
Yesterday the Internal Revenue Service issued final regulations regarding excess benefit transactions. Here is the summary:
SUMMARY: This document contains final regulations that clarify the substantive requirements for tax exemption under section 501(c)(3) of the Internal Revenue Code (Code). This document also contains provisions that clarify the relationship between the substantive requirements for tax exemption under section 501(c)(3) and the imposition of section 4958 excise taxes on excess benefit transactions. These regulations affect organizations described in section 501(c)(3) of the Code and organizations applying for exemption as organizations described in section 501(c)(3) of the Code.
I haven't had time to read them thoroughly yet but my quick read indicates that the regulations do not yet address revenue sharing arrangements. Readers may recall that when Congress enacted IRC 4958, the Congress instructed Treasury to quickly issue regulations clarifying the circumstances under which revenue sharing arrangements constitute excess benefit transactions and, by implication, private inurement under 501(c)(3). Treas. Reg. 53.4958 is still "reserved," unfortunately. I also note that the regulations, at least as indicated by the title to yesterday's annoucement, continue the curious decision to conflate private inurement and private benefit. Recall, too, that Congress indicated in legislative history that the 4958 excise taxes should usually be imposed in lieu of revocation as allowed under 501(c)(3). The latest set of regulations describe the circumstances when the IRS will seek revocation in addition to excise taxes.
For an in-depth discussion of private inurement, excess benefit and revenue sharing see my article, The Scintilla of Individual Profit: In Search of Private Inurement and Excess Benefit. For an in-depth discussion of private benefit, see John Columbo, In Search of Private Benefit.
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