About the Author xi Preface xiii PART I QUALIFICATIONS OF TAX-EXEMPT ORGANIZATIONS 1 CHAPTER 2 Qualifying Under IRC § 501(c)(3) 3 § 2.1 Organizational Test 3 *(c) Inurement Clause 3 (e) Political Activities 3 § 2.2 Operational Test 4 (b) Amount of Charitable Expenditures 4 *(j) The Internet and Tax-Exempt Organizations 4 *(k) Governance 5 (l) Economic Substance 6 CHAPTER 3 Religious Organizations 9 § 3.2 Churches 9 *(a) Special Aspects of a Church 9 (b) Definition of Church 9 CHAPTER 4 Charitable Organizations 11 § 4.2 Promotion of Social Welfare 11 (b) Credit Counseling and Mortgage Assistance Organizations 11 § 4.3 Lessening Burdens of Government 11 § 4.6 Promotion of Health 12 (j) § 501(r) Requirements for Hospitals 12 CHAPTER 5 Educational, Scientific, and Literary Purposes, and Prevention of Cruelty to Children and Animals 23 § 5.1 Educational Purposes 23 *(a) Schools 23 *(f) Fraternity/Sorority Educational Foundations 24 *§ 5.

4 Testing for Public Safety 24 CHAPTER 6 Civic Leagues and Local Associations of Employees: § 501(c)(4) 25 *§ 6.1 Comparison of (c)(3) and (c)(4) Organizations 25 § 6.2 Qualifying and Nonqualifying Civic Organizations 26 *(a) Limitation on Involvement with Political Candidates 26 § 6.5 Disclosures of Nondeductibility 27 *(f) Excepted Organizations 27 CHAPTER 7 Labor, Agricultural, and Horticultural Organizations: § 501(c)(5) 29 § 7.2 Agricultural Groups 29 *(b) Services to Members 29 *(c) Special Exception 30 CHAPTER 8 Business Leagues: § 501(c)(6) 31 § 8.2 Meaning of "Common Business Interest" 31 § 8.3 Line of Business 31 *(a) User Groups 32 § 8.4 Rendering Services for Members 32 (b) Disqualifying Services to Individual Members 32 CHAPTER 9 Social Clubs: § 501(c)(7) 33 § 9.

4 Revenue Tests 33 (a) 35/15 Test 33 (c) Gift Tax for Club Gifts 34 CHAPTER 10 Instrumentalities of Government and Title-Holding Organizations 35 § 10.3 Qualifying for § 501(c)(3) Status 35 *(a) Disadvantages of § 501(c)(3) Status 35 (d) Political Subdivisions 35 *(e) Integral Parts 36 CHAPTER 11 Public Charities 37 *§ 11.1 Distinction between Public and Private Charities 37 § 11.2 "Inherently Public Activity" and Broad Public Support § 509(a)(1) 37 *(h) Unusual Grants 38 § 11.6 Supporting Organizations § 509(a)(3) 39 *(i) Form 990 Schedule A Significantly Revised for 2014 47 PART II STANDARDS FOR PRIVATE FOUNDATIONS 51 CHAPTER 12 Private Foundations--General Concepts 53 § 12.2 Special Rules Pertaining to Private Foundations 53 (a) Types of Private Foundations 53 (c) Definition of Special Terms 53 *§ 12.4 Termination of Private Foundation Status 54 *(e) Mergers, Split-Ups, and Transfers between Foundations 56 *(g) Notifying the IRS 56 CHAPTER 13 Excise Tax Based on Investment Income: IRC § 4940 57 § 13.2 Capital Gains 57 CHAPTER 14 Self-Dealing: IRC § 4941 59 § 14.

1 Definition of Self-Dealing 59 (b) Statutory Exceptions 59 § 14.2 Sale, Exchange, or Lease of Property 60 *(c) Furnishing or Use of Property 60 *(d) Co-Owned Property 61 (e) Partnerships 62 § 14.3 Loans 62 (a) Donation of Indebted Property 62 *§ 14.4 Compensation 63 *§ 14.5 Transactions that Benefit Disqualified Persons 63 *(d) Charitable Pledges 64 § 14.7 Sharing Space, People, and Expenses 64 (a) Can the Foundation Pay for Its Share? 64 *§ 14.9 Property Held by Fiduciaries 64 *§ 14.10 Issues Once Self-Dealing Occurs 65 *(a) Undoing the Transaction 65 (c) Who Pays What Tax? 65 CHAPTER 15 Minimum Distribution Requirements: IRC § 4942 67 § 15.

1 Assets Used to Calculate Minimum Investment Return 67 (c) Exempt Function Assets 67 § 15.2 Measuring Fair Market Value 68 (e) Cash and Other Assets 68 § 15.4 Qualifying Distributions 68 *(c) Community Foundation Grants 68 *(g) Set-Asides 69 *§ 15.6 Satisfying the Distribution Test 75 *(a) Timing of Distributions 75 (a)(1) Changing the Order of Application of Distributions 76 (b) Planning for Excess Distributions 77 (c) Cushion against Decline in Income 78 *(e) Abatement of Penalty 78 CHAPTER 16 Excess Business Holdings and Jeopardizing Investments: IRC §§ 4943 and 4944 79 § 16.1 Excess Business Holdings 79 (a) Definition of Business Enterprise 79 *(b) Corporate Holdings 80 *(c) Partnerships, Trusts, and Proprietorships 80 *(e) Disposition Periods 81 § 16.2 Jeopardizing Investments 81 *(c) Donated Assets 81 *§ 16.3 Program-Related Investments 81 § 16.4 Penalty Taxes 82 (a) When the Manager Knows 82 *(c) Abatement of Penalty 83 CHAPTER 17 Taxable Expenditures: IRC § 4945 85 § 17.

3 Grants to Individuals 85 *(a) Meaning of "Travel, Study or Other Purposes" 85 (c) Food, Shelter, and Aid for the Poor and Distressed 85 *(e) Company Scholarship Plans 87 (f) Seeking Approval 88 § 17.4 Grants to Public Charities 88 *(d) The Reliance Issue 90 § 17.5 Grants to Foreign Organizations 91 *(b) Equivalency Procedure 91 PART III OBTAINING AND MAINTAINING TAX-EXEMPT STATUS 117 CHAPTER 18 IRS Filings, Procedures, and Policies 119 *§ 18.1 Determination Process 119 *(a) Successfully Requesting Tax-Exempt Status 122 (b) Timely Filing Critical for (c)(3) 125 *(c) Organizations That Need Not File 125 *(d) Group Exemptions 126 (g) Exemption for State Purposes 128 § 18.2 Annual Filing of Forms 990 128 (b) Design of Forms 990 128 (c) Who Files What 132 § 18.3 Reporting Organizational Changes to the IRS 134 *(a) Fees for Reports of Changes 134 (e) Change in IRS § 509(a) Class 134 § 18.4 Weathering an IRS Examination 134 (a) Examination Methods 134 (e) The Desired Result: "No Change" 135 CHAPTER 19 Maintaining Exempt Status 155 § 19.1 Checklists 155 CHAPTER 20 Private Inurement and Intermediate Sanctions 161 § 20.

1 Defining Inurement 162 (a) Persons Involved 162 (d) Economic Substance 162 § 20.2 Salaries and Other Compensation 163 § 20.8 Services Rendered for Individuals 163 (b) When Private Benefit is Found 163 § 20.10 Intermediate Sanctions 163 *(h) Paying the § 4958 Excise Tax 163 CHAPTER 21 Unrelated Business Income 165 § 21.1 IRS Scrutiny of Unrelated Business Income 165 § 21.5 What Is Unrelated Business Income? 166 (b) Commerciality Test 166 *§ 21.7 "Substantially Related" 166 § 21.8 Unrelated Activities 166 *(b) Services 166 *(e) Sponsorships 169 § 21.

10 Income Modifications 169 *(a) Dividends and Interest 169 *(c) Rentals 169 *§ 21.11 Calculating and Minimizing Taxable Income 170 § 21.12 Debt-Financed Property 171 *(a) Properties Not Subject to Debt-Financed Rules 171 *(b) Other Types of Debt 172 § 21.13 Museums 172 *(a) Identifying Related and Unrelated Objects 172 § 21.15 Publishing 172 (c) Circulation Income 172 CHAPTER 23 Electioneering and Lobbying 173 § 23.1 Election Campaign Involvement 173 (a) Permissible Campaign Involvement 173 § 23.2 Voter Education versus Candidate Promotion 173 *(a) Voter Education 173 CHAPTER 24 Deductibility and Disclosures 175 *§ 24.1 Overview of Deductibility 175 (a) Contribution Defined 176 § 24.

2 Substantiation and Quid Pro Quo Rules 177 (b) Substantiation Rules 177 CHAPTER 25 Employment Taxes 179 § 25.2 Ministers 179 (b) How Ministers Are Special 179 Index 183.