Internal Revenue Service

  • The IRS observed, in its revised version of Tax Guide for Churches and Religious Organizations (Pub. 1828) (IR-2002-85, that "Congress has enacted special tax laws applicable to churches, [other] religious organizations and ministers in recognition of their unique status in American society and of their rights guaranteed by the First Amendment of the Constitution of the United States." The publication "covers subjects on which a court may have made a decision more favorable to taxpayers than the interpretation by the IRS," but "[u]ntil these differing interpretations are resolved by higher court decisions, or in some other way, this publication will present the interpretation of the IRS."

  • The IRS ruled that a tax-exempt organization "may cause shares of its taxable subsidiary to be issued as compensation [to the exempt organization's employees] without contravening the prohibition against [private] inurement and private benefit, so long as the total compensation to be paid by [the exempt organization] to an employee is reasonable" (PLR 200225046).

  • In its preamble to the final intermediate sanctions regulations, the IRS wrote: "The Seventh Circuit concluded that prohibited inurement under section 501(c)(3) cannot result from a contractual relationship negotiated at arm's length with a party having no prior relationship with the organization, regardless of the relative bargaining strength of the parties or resultant control over the tax-exempt organization created by the terms of the contract."

  • The private inurement prohibition serves to prevent anyone in a position to do so from siphoning off any of a charity's income or assets for personal use" (GCM 39862).

  • Private inurement "is likely to arise where the financial benefit represents a transfer of the organization's financial resources to an individual solely by virtue of the individual's relationship with the organization, and without regard to accomplishing exempt purposes" (GCM 38459).

  • The Commissioner of Internal Revenue, in 1987, testified before a congressional committee, describing the political campaign limitation on charitable organizations, that if "political intervention is involved, the prohibition is absolute; however, some consideration may be given to whether, qualitatively or quantitatively, the organization is in the circumstance where the activity is so trivial it is without legal significance and, therefore, de minimis."

  • ”While the commensurate test is an antiquated articulation, and it may not be precisely right, one can't deny the compelling nature of the argument that a charity has to do charity, and, in determining the amount of that charity, both we and the public are going to have to look at the charity's financial capacity" (TE/GE Commissioner Steven Miller, in an interview published in the Daily Tax Report on January 7, 2009).

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