By: Philip Hackney
Sometimes, well probably every time, when I teach about hospitals qualifying as tax-exempt charitable organizations I tell the joke from the movie Airplane that goes like this:
Rumack: You’d better tell the Captain we’ve got to land as soon as we can. This woman has to be gotten to a hospital.
Elaine Dickinson: A hospital? What is it?
Rumack: It’s a big building with patients, but that’s not important right now.
The point of this joke is an important one to me. It helps to illuminate the fact that the “promotion of health” as a charitable purpose is focused heavily on a space and an activity combined. Generally for the promotion of health to qualify as a charitable purpose there must be a physical building where doctors and nurses relieve the suffering of the afflicted. Not just any promotion of health suffices. Running a cheap pharmacy just does not cut it. Providing sperm to the women of your choice for free, even though it may effect health, simply does not cut it either (don’t ask, just read the opinion). What about health insurance? Generally, because of section 501(m) of the Code, health insurance does not qualify. However, health maintenance organizations (HMOs) that sell health services in exchange for a monthly fee that also own a building where they treat patients can qualify.
That brings us to a recent IRS denial of the application for charitable status of an organization operated as an “accountable care organization” (“ACO”), a creature of Obamacare. Continue reading “Obamacare, ACOs, and Tax-Exemption”
Linda Sugin (Fordham) has a new article out Rhetoric and Reality in the Tax Law of Charity, 84 Fordham L. Rev. 2607 (2016) that looks essential to anyone who is interested conceptually in the place of charity in state law and tax law. The abstract:
“The rhetoric of public purposes in charity law has created the mistaken impression that charity is public and fulfills public goals, when the reality is that charity is private and cannot be expected to solve the problems that governments can solve. The rhetoric arises from a combination of charity-law history and tax expenditure analysis. The reality follows the money and control of charitable organizations. On account of the mismatch of rhetoric and reality, the tax law of charity endorses an entitlement to pre-tax income and (ironically) creates a bias against taxation. This article reorients the project of defining public and private in the tax law by starting from a normative theory of government responsibility.
It challenges the conventional economic justifications for the charitable deduction and exemption, arguing for a more philosophical approach that makes affirmative demands on government to distribute the returns to social cooperation. Under this approach, the appropriate role of private organizations is residual; they must achieve what governments cannot. The article concludes by arguing that current law’s tax benefits for charity are easily justified in this new understanding.”
By: Philip Hackney
On Monday Ben Leff made some good points about illegality and charitable organizations that critiqued my post on a recent IRS denial of an organization that planned to distribute marijuana. I am excited to be able to engage on this issue here on our new effort at consolidated blogging. Ben makes one primary point: “even where conduct is facially “illegal,” there is ambiguity about whether it violates a fundamental public policy, and the IRS should hesitate before making a decision on that score.” He also makes a couple ancillary points on (1) the proper interpretation of the Religious Freedom Restoration Act (“RFRA”), and (2) whether the IRS should have avoided ruling on the issue of marijuana at all in its most recent denial. I will address the primary point first and then turn to the two ancillary points.
I agree that in general the IRS should not make choices about illegality that are not within the IRS’s jurisdiction. For instance, the IRS should not make a judgment that an organization is engaged in illegal behavior, and therefore not charitable, based on its belief that the organization might be in violation of antitrust laws in a criminal way. The IRS simply has no way of generating the proper evidence nor of properly evaluating any evidence it does generate. Until the FTC makes a ruling on the legality of the conduct, the IRS should focus on charitable tax law and whether the acts themselves fall outside of charitable organization behavior in a substantial way. Continue reading “Marijuana and Charitable Orgs Response”
By: Philip Hackney.
The Ways and Means Committee voted Thursday in favor of a bill, H.R. 5053, that would seriously hamper the ability of the IRS to enforce charitable tax law and nonprofit tax law generally. It is a bad-no-good-bill, that comes from folks who champion protection from the IRS, but whose real motive is to make it possible for wealthy individuals to act without hindrance in influencing political campaigns and politics generally. It emanates not from a place of conservatism, but a place of reactionarism and plutarchism (neither of which are words, but both of which probably should be :)). The Koch brothers support this bad bill for a reason.
The Bill will harm IRS regulation and make our already relatively secret-and-subject-to-corruption political contribution system more secret and more subject to corruption (the issue that democrats and interest groups focused upon in attacking the bill). The harm though can be expected to extend to the ability of the federal government and states to regulate individuals using nonprofits to accomplish their ends. Sometimes people running nonprofits do bad things. It will increase the dark in which our regulators try to police the nonprofit sector. Unfortunately, the IRS leant a hand to those trying to give donors greater secrecy as high level officials discussed eliminating schedule B back in December 2015. It is still not clear to me what they were thinking, but I genuinely hope we do not make such a foolish choice. As explained below, we have long recognized a regulatory need for this particular information.
What does this dastardly, seemingly well-intentioned, bill do? Continue reading “Dark Days: Blindfolding Nonprofit Regulators”
In Denial 201615018 (released April 8, 2016 and for which I can only find a Tax Notes link) the IRS denied the charitable organization application of a nonprofit organization organized “to provide a way for your members to collectively and cooperatively cultivate and distribute medical marijuana for medical purposes to qualified patients and primary caregivers who come together to collectively and cooperatively cultivate physician-recommended marijuana.” The IRS denied the organization’s applications on two bases: (1) a charitable organization cannot engage in illegal activities and the distribution of marijuana is illegal under federal law; and (2) it provided too much private benefit. I will focus only on the first basis.
Ben Leff and I have previously debated the issue of marijuana distribution and tax exemption. Ben contended that under certain circumstances a social welfare organization under 501(c)(4) could form to distribute marijuana and operate in a tax-exempt vehicle. The reason to try to do this instead of operating in a taxable vehicle is that under section 280E federal tax law prohibits marijuana distributors from deducting trade or business expenses. While I disagreed with Ben, neither of us argued that a charitable organization could engage in the distribution of marijuana. Both of us, and Ben should absolutely chime in, believed that the public policy/illegality limitation on charitable organizations is absolutely clear on this front: engaging in an illegal activity as a substantial purpose just does not cut it under charitable tax rules. Continue reading “Charitable Organizations and Marijuana?”
My name is Philip Hackney. I am a professor of law and a member of the Surly Subgroup who is particularly interested in Subchapter F. Today was not Tax Day for me – that is on May 15 instead. For the Surly Subgroup, I will focus primarily on issues surrounding nonprofit organizations. I worked for the Office of the Chief Counsel of the IRS in its Tax Exempt Government Entities division for 5 years with a focus on exempt nonprofit organizations. This experience deeply influences my work.
Many people think of only charitable organizations when they hear the term nonprofit organization, but it is a much more diverse sector than just charitable. The NFL and the NCAA are both nonprofit organizations. I often view nonprofits through an interest group lens. Trade associations, labor unions, and social welfare organizations (think Tea Party) all play a big part in our democracy and are subject to some of our most divisive issues such as campaign finance and fights over inequality. Although many might think of the nonprofit sector as a sleepy powerless backwater in our economy and in our political system, it is anything but. I hope to share my fascination with the nonprofit sector and its relationship to our taxation system with you on this blog. I will also blog about public policy, tax administration, nonprofit governance, and maybe occasionally my deep frustration with some significant tax and public policy problems with my home state of Louisiana.
Thanks for reading and I look forward to interacting with this surly subgroup and with you the readers.