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Tax Planning and Compliance for Tax-Exempt Organizations: Rules, Checklists, Procedures, 5th Edition

Tax Planning and Compliance for Tax-Exempt Organizations: Rules, Checklists, Procedures, 5th Edition

Jody Blazek, Amanda Adams (With)

ISBN: 978-0-470-90344-5

Feb 2012

896 pages

In Stock

$307.95

Description

An essential, timesaving guide for accountants, lawyers, nonprofit executives and directors, consultants, and volunteers

This book is an indispensable guide to navigating the complex maze of nonprofit tax rules and regulations. A clear and fully cited description of the requirements for the various categories of tax-exempt entities from public charities, private foundations, civic associations, business leagues, and social clubs to title-holding companies and governmental entities can be found. Practical guidance on potential for income tax on revenue-producing enterprises along with explanations of many exceptions to taxability is provided. Issues raised by Internet activity, advertising, publishing, providing services, and much more are explained.

This useful guide covers the many significant issues facing nonprofit organizations, including compensation and possible private inurement, affiliation, separations and mergers, donor disclosures, lobbying and electioneering, and employment taxes.

  • Offers a supplemental, annual update to keep subscribers current on relevant changes in IRS forms, requirements, and related tax procedures
  • Includes easy-to-use checklists highlighting such critical concerns as tax-exempt eligibility, reporting to the IRS, and comprehensive tax compliance issues
  • Features a variety of sample documents for private foundations, including penalty abatement requests and sharing space agreements
  • Provides helpful practice aids, such as a comparison of the differences between public and private charities, charts reflecting lobbying limits for different types of entities, and listings of rulings and cases that illustrate permissible activity for each type of organizations compared to impermissible activity

Filled with practical tips and suggestions for handling such critical situations as preparing for and surviving an IRS examination, Tax Planning and Compliance for Tax-Exempt Organizations, Fifth Edition provides guidance for the significant issues facing nonprofit organizations.

List of Exhibits xiii

Preface xvii

About the Authors xxiii

Acknowledgments xxv

PART I QUALIFICATIONS OF TAX-EXEMPT ORGANIZATIONS 1

CHAPTER 1 Distinguishing Characteristics of Tax-Exempt Organizations 3

1.1 Differences between Exempt and Nonexempt Organizations 10

1.2 Nomenclature 13

1.3 Ownership and Control 13

1.4 Role of the Internal Revenue Service 14

1.5 Suitability as an Exempt Organization 15

1.6 Start-Up Tax and Financial Considerations 18

1.7 Choosing the Best Form of Organization 22

CHAPTER 2 Qualifying Under IRC §501(c)(3) 27

2.1 Organizational Test 29

2.2 Operational Test 35

CHAPTER 3 Religious Organizations 59

3.1 Types of Religious Organizations 59

3.2 Churches 64

3.3 Religious Orders 72

3.4 Religious and Apostolic Associations 72

CHAPTER 4 Charitable Organizations 75

4.1 Relief of the Poor 77

4.2 Promotion of Social Welfare 79

4.3 Lessening the Burdens of Government 88

4.4 Advancement of Religion 90

4.5 Advancement of Education and Science 90

4.6 Promotion of Health 91

4.7 Cooperative Hospital Service Organizations 110

CHAPTER 5 Educational, Scientific, and Literary Purposes and Prevention of Cruelty to Children and Animals 111

5.1 Educational Purposes 111

5.2 Literary Purposes 126

5.3 Scientific Purposes 127

5.4 Testing for Public Safety 132

5.5 Fostering National or International Amateur Sports Competition (But Only If No Part of Its Activities Involves the Provision of Athletic Facilities or Equipment) 133

5.6 Prevention of Cruelty to Children or Animals 134

CHAPTER 6 Civic Leagues and Local Associations of Employees: §501(c)(4) 135

6.1 Comparison of (c)(3) and (c)(4) Organizations 137

6.2 Qualifying and Nonqualifying Civic Organizations 141

6.3 Local Associations of Employees 143

6.4 Neighborhood and Homeowner’s Associations 145

6.5 Disclosures of Nondeductibility 148

CHAPTER 7 Labor, Agricultural, and Horticultural Organizations: §501(c)(5) 157

7.1 Labor Unions 158

7.2 Agricultural Groups 163

7.3 Horticultural Groups 166

7.4 Disclosures of Nondeductibility 166

CHAPTER 8 Business Leagues: §501(c)(6) 169

8.1 Basic Characteristics 170

8.2 Meaning of "Common Business Interest" 170

8.3 Line of Business 172

8.4 Rendering Services for Members 174

8.5 Sources of Revenue 180

8.6 Membership Categories 180

8.7 Member Inurement 182

8.8 Chambers of Commerce and Boards of Trade 183

8.9 Comparison to §501(c)(5) 183

8.10 Recognition of Exempt Status 184

8.11 Formation of a Related Charitable Organization 185

8.12 Disclosures for Lobbying and Nondeductibility 186

CHAPTER 9 Social Clubs: §501(c)(7) 189

9.1 Organizational Requirements and Characteristics 190

9.2 Member Inurement Prohibited 193

9.3 Membership Requirements 194

9.4 Revenue Tests 196

9.5 Unrelated Business Income Tax 198

9.6 Filing and Disclosure Requirements 203

CHAPTER 10 Instrumentalities of Government and Title-Holding Corporations 205

10.1 §501(c)(1) Instrumentalities of the United States 205

10.2 Governmental Units 206

10.3 Qualifying for §501(c)(3) Status 210

10.4 §501(c)(2) Title-Holding Corporations 220

10.5 §501(c)(25) Title-Holding Corporations 225

CHAPTER 11 Public Charities 227

11.1 Distinctions between Public and Private Charities 228

11.2 "Inherently Public Activity" and Broad Public Support: §509(a)(1) 232

11.3 Community Foundations 243

11.4 Service-Providing Organizations: §509(a)(2) 250

11.5 Difference between §509(a)(1) and §509(a)(2) 253

11.6 Supporting Organizations: §509(a)(3) 260

11.7 Testing for Public Safety: §509(a)(4) 271

PART II STANDARDS FOR PRIVATE FOUNDATIONS 273

CHAPTER 12 Private Foundations—General Concepts 275

12.1 Why Private Foundations Are Special 275

12.2 Special Rules Pertaining to Private Foundations 278

12.3 Application of Taxes to Certain Nonexempt Trusts 285

12.4 Termination of Private Foundation Status 286

CHAPTER 13 Excise Tax Based on Investment Income: IRC §4940 311

13.1 Formula for Taxable Income 312

13.2 Capital Gains 319

13.3 Ponzi Scheme Losses 324

13.4 Deductions from Gross Investment Income 325

13.5 Tax-Planning Ideas 330

13.6 Foreign Foundations 334

13.7 Timely Payment of Excise Tax 336

13.8 Exempt Operating Foundations 337

CHAPTER 14 Self-Dealing: IRC §4941 339

14.1 Definition of Self-Dealing 340

14.2 Sale, Exchange, or Lease of Property 343

14.3 Loans 350

14.4 Compensation 352

14.5 Transactions That Benefit Disqualified Persons 363

14.6 Payments to Government Officials 369

14.7 Sharing Space, People, and Expenses 370

14.8 Indirect Deals 374

14.9 Property Held by Fiduciaries 375

14.10 Issues Once Self-Dealing Occurs 379

CHAPTER 15 Minimum Distribution Requirements: IRC §4942 385

15.1 Assets Used to Calculate Minimum Investment Return 386

15.2 Measuring Fair Market Value 393

15.3 Distributable Amount 398

15.4 Qualifying Distributions 401

15.5 Private Operating Foundations 413

15.6 Satisfying the Distribution Test 422

CHAPTER 16 Excess Business Holdings and Jeopardizing Investments: IRC §§4943 and 4944 427

16.1 Excess Business Holdings 427

16.2 Jeopardizing Investments 435

16.3 Program-Related Investments 440

16.4 Penalty Taxes 444

CHAPTER 17 Taxable Expenditures: IRC §4945 449

17.1 Lobbying 451

17.2 Voter Registration Drives 456

17.3 Grants to Individuals 457

17.4 Grants to Public Charities 470

17.5 Grants to Foreign Organizations 482

17.6 Expenditure Responsibility Grants 487

17.7 Noncharitable Expenditures 500

17.8 Excise Taxes Payable 501

PART III OBTAINING AND MAINTAINING TAX-EXEMPT STATUS 531

CHAPTER 18 IRS Filings, Procedures, and Policies 533

18.1 IRS Determination Process 535

18.2 Annual Filing of Forms 990 543

18.3 Reporting Organizational Changes to the IRS 553

18.4 Weathering an IRS Examination 559

18.5 When Organization Loses Its Tax-Exempt Status 564

CHAPTER 19 Maintaining Exempt Status 565

19.1 Checklists 565

CHAPTER 20 Private Inurement and Intermediate Sanctions 587

20.1 Defining Inurement 589

20.2 Salaries and Other Compensation 591

20.3 Finding Salary Statistics 593

20.4 Housing and Meals 597

20.5 Purchase, Lease, or Sale of Property or Services 598

20.6 Loans and Guarantees 600

20.7 For-Profit to Nonprofit and Vice Versa 601

20.8 Services Rendered for Individuals 602

20.9 Joint Ventures 604

20.10 Intermediate Sanctions 605

CHAPTER 21 Unrelated Business Income 621

21.1 IRS Scrutiny of Unrelated Business Income 623

21.2 History of the Unrelated Business Income Tax 624

21.3 Consequences of Receiving UBI 625

21.4 Definition of Trade or Business 627

21.5 What Is Unrelated Business Income? 629

21.6 "Regularly Carried On" 630

21.7 "Substantially Related" 632

21.8 Unrelated Activities 637

21.9 The Exceptions 655

21.10 Income Modifications 662

21.11 Calculating and Minimizing Taxable Income 672

21.12 Debt-Financed Property 676

21.13 Museums 682

21.14 Travel Tours 684

21.15 Publishing 685

CHAPTER 22 Relationships with Other Organizations and Businesses 689

22.1 Creation of (c)(3) by (c)(4), (5), or (6) 690

22.2 Alliances with Investors 694

22.3 Creation of a For-Profit Corporate Subsidiary 700

22.4 Active Business Relationships 703

CHAPTER 23 Electioneering and Lobbying 707

23.1 Election Campaign Involvement 708

23.2 Voter Education versus Candidate Promotion 714

23.3 Tax on Political Expenditures 719

23.4 Lobbying Activity of §501(c)(3) Organizations 732

23.5 Permissible Amounts of Lobbying 739

23.6 Lobbying Limits for §501(c)(4), (5), (6), and Other Exempt Organizations 742

23.7 Advocacy and Nonpartisan Analysis 743

CHAPTER 24 Deductibility and Disclosures 747

24.1 Overview of Deductibility 747

24.2 The Substantiation and Quid Pro Quo Rules 759

24.3 Valuing Donor Benefits 769

24.4 Unrelated Business Income Aspects of Fund-Raising 773

24.5 State and Local Regulations 774

CHAPTER 25 Employment Taxes 777

25.1 Distinctions Between Employees and Independent Contractors 778

25.2 Ministers 786

25.3 Reporting Requirements 790

CHAPTER 26 Mergers, Bankruptcies, and Terminations 795

26.1 Mergers and Other Combinations 795

26.2 Bankruptcy 800

26.3 Terminations 803

Table of Cases 805

Table of IRS Revenue Rulings 817

Table of IRS Revenue Procedures 823

Index 825