Friday, September 2, 2011
UPDATE: Nonprofit That Converted to "B Corp" Status Had Its 501(c)(3) Application Apparently Rejected by IRS
I previously blogged about the reported decision of CouchSurfing.org to because a "B" or "Benefit" corporation in order to receive significant investment funds. It just came to my attention through the ARNOVA list-serv that CouchSurfing.org had previously sought unsuccessfully to receive recognition from the IRS as a tax-exempt section 501(c)(3) charitable organization. Here is the explanation from the organization's website:
"When we started CouchSurfing, being a non-profit was the best option that we could find to make sure that we achieved our vision. But achieving the top status for American non-profits — known as 501c(3) status — has turned out to be very difficult. Although we’ve operated as a non-profit financially, our mission isn't traditional enough for the government to grant us this type of status.
So we need to make a change. After 5 years of trying to go in the direction of 501c(3), we've finally understood that this isn't going to work for us. We need to find another structure in order to continue our progress towards a world where anyone can explore and connect."
The website also provides a video with two of the organization's founders explaining this history and the decision to pursue B Corp status instead.
Ellen Aprill (Loyola-L.A.) has posted on SSRN "Once and Future Gift Taxation of Transfers to Section 501(c)(4) Organizations: Current Law, Constitutional Issues, and Policy Considerations" (forthcoming NYU Journal of Legislation & Public Policy). Here is the abstract:
The applicability of the gift tax for transfers to section 501(c)(4) social welfare organizations, entities that are permitted to intervene in political campaigns to a significant extent while keeping their donors anonymous, has long been a matter of uncertainty. Applicability of the gift tax to contributions to section 501(c)(4) organizations is of great importance to these organizations because if the gift tax applies and were to be enforced, the amounts such organizations receive are likely to be significantly reduced. In many cases, donors would be expected to take such cost into account and reduce the amount of their contributions.
This issue has gone without resolution because for decades the IRS has not enforced the gift tax in such situations. Recently, however, a furor arose about application of the gift tax to donors to section 501(c)(4) that engage in campaign intervention, only to die down soon after it appeared. The IRS acknowledged in May that it had audits underway for five such donors, only to suspend the audits after receiving letters from Republican members of the Senate Finance Committee and House Ways and Means Committee objecting to the audits. In July, Steven T. Miller, Deputy Commissioner for Services and Enforcement, wrote a memo stating that his office would be coordinating with the Office of Chief Counsel as to whether there is a need for further guidance in the area, closing any outstanding efforts and stating that no examination resources would be expended on the issue until further notice.
The purpose of this piece is to scrutinize the issues raised in connection with applying the gift tax to contributions to section 501(c)(4) organizations. It examines the status of such taxation under current law, the constitutionality of such taxation, and policy considerations. It concludes that, despite precedents that might be interpreted to the contrary, the better view is that such gifts are taxable under current law and that, despite Supreme Court campaign finance reform precedents, such taxation is constitutional under Supreme Court tax law precedents. Nonetheless, important constitutional values are at stake, and Congress should enact a provision explicitly exempting such contributions from the gift tax, as well as a provision taxing donations of appreciated property and a provision requiring donor disclosure. Failure by the IRS to enforce the law is not a satisfactory solution.
Part I explains the structure, history and purpose of the gift tax. Part II describes section 501(c)(4) organizations. Part III presents administrative and judicial precedents. Part IV sets forth constitutional arguments both against and in favor of applying the gift tax to section 501(c)(4) organizations. Part V adds the policy calculus that calls for Congress to enact a provision adding an exemption from the gift tax for section 501(c)(4) organizations. Part VI concludes.
Thursday, September 1, 2011
Last week the Associated Press reported on several 9/11 charities that never produced promised benefits and in several cases benefited their founders or founders' companies. The article notes that the IRS revoked the tax-exempt status of almost four dozen 9/11 charities for failing to show how money was collected and spent, but the article is silent on whether the IRS investigated or penalized recipients of possibly improper financial penalties. A follow-up article notes that at least two states - Arizona and New York - have launched investigations into one or more the charities named in the initial report.
Tuesday, August 30, 2011
We have previously blogged about the trend in the United States toward the creation of nonprofit news organizations (see, for example, a Pew Research Center's Project on Excellence in Journalism post, a federal legislation post, and a Texas Tribune post). Now from across the Pond comes word that a group of journalists, academics, and charitable funders is asking the Charity Commission for England and Wales to make it easier for nonprofits there to qualify as charities. The requests were apparently based upon a recent report prepared by the Reuters Institute for the Study of Journalism at Oxford University titled Is There a Better Structure for News Providers? The Potential in Charitable and Trust Ownership, which is summarized briefly on Oxford's website but is not yet available in full form. The author is Robert G. Picard. Here is the summary:
Charitable and trust ownership are frequently advocated as alternatives to challenges in commercial news organisations. This book adds information, evidence and knowledge to the dialogue taking place by exploring existing arrangements in UK, France, Canada, and US, looking at various structural arrangements and exploring advantages and disadvantages of various forms.