Monday, October 29, 2012
I have complained before on this blog about interactions between the Community Development Law Clinic, which I supervise at UNC Law, and the IRS. Particularly on matters of commercial activities undertaken by charitable organizations, IRS examining officers have been obtuse and inconsistent. However, we had a recent interaction with the IRS in which it proved flexible and helpful.
We represent a group that owns athletic facilities and organizes a sports league in its community. The organization, which grew organically in accordance with community needs and which has always been managed by volunteers, incorporated under state law more than forty years ago but never applied for 501(c)(3) status. During its forty years of existence, it covered its expenses, mostly by charging fees, but rarely produced any surplus. It maintained financial records, but did not get serious about financial accounting and controls until three years ago when a more professional group of board members took control. They now wish to apply for (c)(3) status because their facilities are in need of repair and the fee income will not cover the costs.
We approached the IRS with some trepidation, given that the Form 1023 asks for five years of financial information and this organization has only three to offer. An officer on the technical advice line told us that this sort of thing happens frequently, that the IRS is accustomed to dealing with it and does not wish to penalize well-meaning community groups such as this one, and that they can deal with the required financial information by providing the three most recent years plus a projection for the next two.
I take back at least some of the unkind things I said (or implied) about the IRS and its dealings with exempt organizations.