Tuesday, May 20, 2008

IRS Seeks to Fill "Jurisdictional Gaps" in Charitable Exemption Law

On the heels of a recent speech in which TE/GE Commissioner Steve Miller speaks of "jurisdictional gaps" in IRS authority, the Chronicle of Philanthropy published an article describing a recent private letter ruling denying "tax exemption to an organization [because it] did not spend enough of its money on charitable programs."  Here is an excerpt from the article:

These state records also showed that the money that the organization reported spending on its charitable program during the year was less than one-half of 1 percent of its total revenue and about 3 percent of its total expenses.

Last year, the Tennessee Department of Commerce and Insurance said that the National Foundation of America had been running an insurance business without a licence. State authorities said that the organization promised consumers that its annuity product would entitle purchasers to significant tax benefits because of its federal status as a charity, even though it had not been approved as a charity by the IRS.

In its ruling, the IRS concluded that the organization did not qualify as a charity because it was organized and operated for the primary purpose of running a business. “You do not carry on a charitable program that is commensurate in scope with your financial resources,” the IRS said.

For the entire article, see "IRS Denies Tax-Exempt Status to Group That Spends Too Little Money on Charitable Programs," in the May 13, 2008, issue of the Chronicle of Philanthropy.  For the full text of the private letter ruling, go here.



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