The IRS Did Not Violate the First Amendment in Declining to Exempt Organizations to Help Marijuana Dealers

By Ellen P. Aprill

Several commentators have called attention to the statement of the IRS in Revenue Procedure 2018-5, just reiterated in Rev. Proc. 2019-1, that it will not issue a determination letter recognizing exemption from income tax for “an organization whose purpose is directed to the improvement of business conditions of one or more lines of business relating to an activity involving controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law regardless of its legality under the law of the state in which such activity is conducted.”

These commentators suggest that this position could constitute impermissible viewpoint discrimination in violation of the First Amendment.  I do not view the IRS announcement in this way. Instead, I see it as an application of the long-standing principle denying exemption to entities with an illegal purpose or engage primarily in illegal activities.

The illegality doctrine has long prevented exemption under section 501(c)(3), the category that encompasses what we generally call charities. In the words of Section 101(c) of the ALI Draft Restatement of the Law of Charitable Nonprofit Organizations, “[a] purpose is not charitable if it is not lawful, its performance requires the commission of criminal or tortious activity, or it is otherwise contrary to fundamental public policy.”  Continue reading “The IRS Did Not Violate the First Amendment in Declining to Exempt Organizations to Help Marijuana Dealers”

Happy #TaxValentines Day!

TwitterHeartBy: Leandra Lederman

#TaxTwitter has been waxing poetic again this year. The #TaxValentines are not to be missed!

I’ll post just one (a new one) here; follow the links above to see more!

Roses are red
I give you my heart
And all of my tax problems
‘Til death do us part

#TaxValentines #IRC6013d3 #notsoinnocentspouse

Happy Valentine’s Day! ❤

Redacted History: Tax Privacy and the KKK

By Sam Brunson

Tax Lien by Nick Youngson, CC BY-SA 3.0, Alpha Stock Images, Original image at The Blue Diamond Gallery.

A year and a half ago, I learned that in the 1940s, the IRS revoked the Ku Klux Klan’s tax exemption and sued it for almost $700,000 in back taxes. Two years later, the IRS filed a tax lien against the KKK’s assets. While that may not have been the death blow to the 1920s iteration of the KKK, it was certainly part of the death blow.

I’ve since learned a lot more about the whole story, including how the KKK could claim exemption in the first place. I’ve read dozens of contemporary (and retrospective) newspaper articles about the revocation. Heck, I’ve read through a couple Stetson Kennedy archives. I’m dying to write an article about this piece of history.

There’s only one problem: I don’t know why the KKK lost its exemption.

Continue reading “Redacted History: Tax Privacy and the KKK”

Elizabeth Warren and the Wealth Tax

By United States Senate, Public Domain

By Sam Brunson

It’s not even an election year, but the last couple weeks have been exciting for tax policy fans. First was Rep. Alexandria Ocasio-Cortez inserting the idea of a 70% top marginal rate into the public conversation. Then today, Sen. Elizabeth Warren proposed a wealth tax on taxpayers with household wealth in excess of $50 million. While she hasn’t released details, and the news reports aren’t completely clear, I’m assuming that households would pay 2% of their net worth in excess of $50 million, and an additional 1% on their wealth in excess of $1 billion.[fn1]

Can the government do that? Maybe, but probably not with a traditional wealth tax.  Continue reading “Elizabeth Warren and the Wealth Tax”

The Fyre Festival: Intro to Ja Rule’s Tax Troubles

By Sam Brunson

Photo by Eduardo Santos. CC BY 2.0

Like much of America, I watched a Fyre Festival documentary last week. I chose Hulu’s Fyre Fraud over Netflix’s Fyre: The Greatest Party That Never Happened because I only had time for one, and Fire Fraud had an interview with Billy McFarland. (I’ve since heard great things about Netflix’s documentary, too, so I’ll probably watch it eventually.)

About nineteen and a half minutes into the documentary, we’re introduced to Ja Rule; we see him in an interview (with Wendy, apparently), who says to him, “So you spent two years in prison.”

He responds, “Yeah, I went in on my state charge for the gun charge, and they ran it concurrent with my tax stuff.”

Now, Ja Rule’s tax troubles are probably the least interesting part of the documentary (and are over, iirc, as soon as he laughs after saying “tax stuff”). But I always find celebrity tax evasion interesting, so I thought I’d run it down a little. Continue reading “The Fyre Festival: Intro to Ja Rule’s Tax Troubles”

Evelyn Brody in the Gallery

By Sam Brunson

Evelyn Brody with her painting “When in French”

Have you ever wondered what tax professors do when they’re not doing tax? In the case of Evelyn Brody (Chicago-Kent College of Law), one answer is art.

I’m sure most people who read this blog are familiar with Evelyn’s academic work, but if you’re not, she teaches and writes broadly in the income tax and nonprofit law areas. She also paints.

And when I say paints,” I mean it. Almost two weeks ago, she opened “Suspended Animation,” an exhibition of her pastels at the Leslie Wolfe Gallery. This afternoon I went to the reception she hosted at the gallery. Continue reading “Evelyn Brody in the Gallery”

Coming Soon: Trump’s Tax Returns (or Maybe Not)

By Sam Brunson

As we’re all acutely aware, in his presidential campaign, Donald Trump flouted decades of history by refusing to release his tax returns. And given that (a) the history was based on norms, not law, and (b) the Republican-controlled Congress did nothing to enforce the norms (or transform them into law), he continued to flout that norm throughout the first two years of his presidency.

But on January 3, 2019, Democrats will gain control of the House. And Democratic Representatives have made pretty clear that one of their first agenda items will be to request Trump’s tax returns. So does that mean we’ll finally get access to his tax returns?

Maybe. (But probably not.) Continue reading “Coming Soon: Trump’s Tax Returns (or Maybe Not)”

Wesley Snipes and His Offer-in-Compromise

By Sam Brunson

By nicolas genin from Paris, France [CC BY-SA 2.0], via Wikimedia Commons
You may remember about a decade ago, when Wesley Snipes was sentenced to three years in prison for willfully failing to file tax returns. During his sentencing, Snipes apologized for his “mistakes and errors,” and promised that “[t]his will never happen again.”

He did not, however, mention taxes in his apology. And apparently, the “this” that he promised would never happen again was not failing to pay his taxes.

Yesterday, the Tax Court issued an opinion holding that the IRS did not abuse its discretion in denying Snipes’s offer-in-compromise. Continue reading “Wesley Snipes and His Offer-in-Compromise”

Seventh Circuit Preview: Gaylor v. Mnuchin

By Sam Brunson

A week from Wednesday, the Seventh Circuit will hear oral arguments in Gaylor v. Mnuchin, the case in which the Freedom From Religion Foundation is challenging the constitutionality of the parsonage allowance.[fn1]

In anticipation of the oral arguments, Professor Anthony Kreis and I are hosting a preview of the case this Wednesday, October 17, at noon. It will be in room 105 of the Corboy Law Center, 25 E. Pearson St., Chicago, IL 60611. There will be pizza, soda, and some great discussion. If you’re free for that hour (and, of course, in or near Chicago), I’d love to see you there! RSVP here. Continue reading “Seventh Circuit Preview: Gaylor v. Mnuchin”

Trump, Tax Fraud, and the Statute of Limitations

By Sam Brunson

Photo by Takver. CC BY-SA 2.0

By now I’m sure you’ve read the New York Times story about the Trump gift tax evasion (or, if not that story—which is really, really long—at least a summary of it). There is a lot in there, and I suspect it’ll inspire more than a couple posts here, but I wanted to lead off with the statute of limitations.

Because let’s be real: I’ve always thought of the statute of limitations as being three years or, if you substantially understate your gross income, six years, unless you don’t file a return, in which case it runs forever until you file a return. Since most of the alleged fraud occurred in the 1990s or earlier, even the longer statute would be long passed.

It turns out that my mind entirely skipped over section 6501(c).[fn1] Section 6501(c) says that if you file a “false or fraudulent return,” there is no statute of limitations. The IRS can go in and assess a tax deficiency, with interest and penalties, whenever it wants. Continue reading “Trump, Tax Fraud, and the Statute of Limitations”