On July 1, 2022, the IRS, Director of Exempt Organizations issued an array of final adverse determinations with respect to organizations seeking exemption under 26 U.S.C. sections 501(c)(3), 501(c)(4), and 501(c)(7). In these Private Letter Rulings, the IRS Exempt Organizations Division denied tax-exempt status to the organizations.

hat would, with only limited exceptions, prohibit employers from using non-compete clauses. More specifically, the FTC’s new rule would make it illegal for an employer to:enter into or attempt to enter into a non-compete with a workermaintain a non-compete with a workerrepresent to a worker, under certain circumstances, that the worker is subject to a non-competeThe Proposed Rule would also require employers to rescind existing non-competes and actively inform workers that they are no longer in effect.If finalized in its current form, the Proposed Rule would obviously have a profound and dramatic impact on employers in every line of business, including the health care industry. That said, a critical threshold question with respect to the Proposed Rule and its impact on health care employers is whether and to what extent the rule is applicable to nonprofit health care organizations, and, in particular, organizations that have been recognized by the IRS as tax-exempt organizations under Section 501(c)(3) of the Internal Revenue Code (“Code”).While this question is not specifically addressed in the Proposed Rule, there is language there that supports the conclusion that the rule, if finalized in its present form, will not apply to many, if not most, of these organizations.The starting point is language in Section V of the Proposed Rule in which the FTC describes each section of the rule on a section-by-section basis.In subsection I(c) of Section V, the FTC states that the “[r]ule would apply only to non-compete clauses between employers and workers.” For this purpose, an “employer” would include any “person” that hires or contracts with a worker to work for the person, and a “person” would be defined as any natural person, partnership, corporation, association or other legal entity. On its face, this would of course be broad enough to result in Section 501(c)(3) organizations being considered employers. However, the FTC goes on to state that:“Some entities that would otherwise be employers may not be subject to th

On March 17, 2023, the IRS Exempt Organizations and Government Entities Division published two Technical Guides: (1) TG 1 Instrumentalities of the United States, Government Corporations, and Federal Credit Unions; and (2) TG 3-3 Exempt Purpose, Charitable IRC 501(c)(3).Given its substance and magnitude, TG 3-3 will be addressed first here.TG 3-3 Exempt Purpose, Charitable IRC 501(c)(3)TG 3-3, a 59-page gem, provides guidance on, basically, the meaning of exempt purposes described in section 501(c)(3) of Title 26 of the Internal Revenue Code (“Code”). In this regard, section 501 of the Code affords exemption from federal income tax to (among other organizations)Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or othe

Donors that make contributions to charitable organizations recognized under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the “Code”), may claim an individual income tax deduction under Section 170 (all subsequent references to “Section” shall mean Sections of the Code). For donors, this is often a persuasive factor in deciding whether to donate to a particular charitable organization.

State LLC statutes generally are less detailed than state not-for-profit corporation statutes with regard to language required in organizational documents and state filings. Many LLC owners appreciate the ease of formation and operation ofLLCs.Requirements for LLCs to be Tax Exempt Organizations Under Notice 2021-56While continuing to study the issues and inviting public comments on LLCs being tax exempt organizations, the IRS has decided to issue determination letters to LLCs seeking §501(c)(3) status; provided that an LLC's articles of organization and its operating agreement include the following:Provisions that each member of an LLC either be: (a) an organization described in IRC §501(c)(3) and exempt from federal income tax under IRC §501(a); or (b) a state, a U.S. possession or any political subdivision of the U.S., a state, the District of Columbia or a U.S. possession or a wholly owned instrumentality of the above (a "governmental entity").Charitable purposes and charitable dissolution provisions that are currently included in the treasury regulations that govern the conduct of an organization described in IRC §501(c)(3).If the LLC is to be treated as a private foundation, provisions that comply with IRC §508(e), stating that the LLC/private foundation will comply with the self-dealing rules, will avoid the excise taxes due upon a failure to distribute its income, will prohibit the retention of excess business holdings, and will prohibit the LLC from making investments that jeopardize its charitable purpose and from making taxable expenditures, all as detailed in IRC §§4941-4945.Should one of the LLCs members cease to meet the first requirement above (i.e., if a memb

The rule incorporates statutory provisions added to the CMP law by the ACA that permit the OIG to impose penalties and exclusion for the following conduct:Failure to grant the OIG timely access to records, upon reasonable request;Ordering or prescribing while excluded;Making false statements, omissions, or misrepresentations in an enrollment or bid application;Failure to report and return an overpayment; andMaking or using a false record or statement that is material to a false or fraudulent claim.New penalty rules applicable to Medicare Advantage and Part D plans were also finalized.IRC Section 501(r): An ACA Provision That’s Likely Here to StayBy: Laurice Rutledge Lambert and Elizabeth O’ConnellFor tax-exempt hospitals, the Section 501(r) Internal Revenue Code (IRC) requirements of the Affordable Care Act are “old news” by now. However, despite the recent focus on repeal of the ACA, it is worth noting that this provision is likely here to stay. Sen. Charles Grassley (R-IA), a long-time advocate for low-income, uninsured, and underinsured patients, co-authored this section of the ACA, which is the culmination of years of advocacy for transparency in hospital billing practices.

rs claimed, supported the above statements: “For example, the Community Service Society published a report revealing 56 nonprofit hospitals in New York filed liens on nearly 5,000 patients’ homes in 2017 and 2018. The liens were placed predominantly on homes in poor and rural areas, with nearly 80 percent of the liens occurring in counties with median incomes below 300 percent of the poverty line.” The Health, Education, Labor, and Pensions Committee.https://www.sanders.senate.gov/wp-content/uploads/Executive-Charity-HELP-Committee-Majority-Staff-Report-Final.pdf.The report estimates that tax-exempt hospitals received an aggregate of $28 billion in Federal, state, and local tax benefits in 2020. Unless stated otherwise, all “Section” references are to the IRC – the Code, because there can be only one. (Any Highlander film fans out there? Or fans of Queen, whose music was featured in the film?) Although Sec. 501(c)(3) hospitals generally are exempt from Federal tax on their net income (IRC Sec. 501(a)), such organizations are subject to the unrelated business income tax on income derived from a trade or business regularly carried on by the organization that is not substantially related to the performance of the organization’s tax-exempt functions. IRC Sec. 511. In general, interest, rents, royalties, and annuities are excluded from the unrelated business income of tax-exempt organizations. IRC Sec. 512(b). In general, a deduction is permitted for charitable contributions, including charitable contributions to tax-exempt hospitals (IRC Sec. 170), subject to certain limitations that depend on the type of taxpayer, the property contributed, and the donee organization. IRC Sec. 170(b) and Sec. 509. The amount of deduction generally equals the fair market value of the contributed property on the date of the contribution. Charitable deductions are provided for income, estate, and gift tax purposes. In addition to issuing tax-exempt bonds for government operations and services, State and

blished an article detailing the Chouinard family’s transfer of the majority of their ownership interests in Patagonia to a 501(c)(4) nonprofit organization.The article highlighted the family’s longstanding commitment to charitable causes, and the lack of tax benefits, including a charitable deduction, associated with the transfer. The Patagonia story garnered significant national attention and spurred advisors and charitably inclined clients to ask reasonable questions: What is a 501(c)(4)? How are they different from more familiar charitable organizations? Are there reasons to consider 501(c)(4)s within our own wealth and charitable plans, particularly if there is no apparent tax benefit? What follows is a brief summary of characteristics of 501(c)(4) organizations, what distinguishes them from more familiar charitable structures, notable features of their organization and operation, and the tax and non-tax benefits they may provide.Introduction to Social Welfare Organizations Under IRC § 501(c)(4)The Internal Revenue Code (IRC) provides exemption from taxation for certain organizations, including those described in § 501(c)(4). Section 501(c)(4) describes two types of exempt organizations: (1) those that are organized for the promotion of social welfare and (2) local associations of employees. A social welfare organization qualifies for tax exemption so long as (1) it does not operate for profit, (2) it operates exclusively for the promotion of “social welfare,” and (3) none of the organization’s net earnings inure to the benefit of any private shareholder or individual. Organizations that operate to promote social welfare are “primarily engaged in promoting in some way the common good and general welfare of the people of the community,” with the “purpose of bringing about civic betterments and social improvements.” Social welfare activities also include charitable activities that can be conducted by Section 501(c)(3) organizations (discussed below).Social welfare organizations

not prohibited under any law in Belize, including for carrying “on the business of an investment company.” It had no bylaws. It sold annuity contracts to individuals in consideration for purchase payments. Upon receipt, purchase payments were transferred to a segregated trust account and subaccounts administered by an independent trustee. By contract, the assets were the property of Commonwealth rather than of the clients that provided the purchase payments, and each fund was to be assessed investment management fees. The value of each segregated trust account and each annuity depended on the performance of the investment. Commonwealth received $82,621,231 and $2,131,442 in purchase payments in 2013 and 2014, respectively, as consideration for the sale of the annuity contracts. Commonwealth also received $150,000 and $194,782 in maintenance fees in 2013 and 2014, respectively.On May 12, 2014, Commonwealth submitted to the IRS a Form 1024, Application for Recognition of Exemption Under Section 501(a) of the Internal Revenue Code, claiming to be in the business of issuing and managing annuity contracts and making other disclosures relating to that purported business. The IRS issued a final adverse determination letter, denying the application and informing Commonwealth that it did not qualify for exemption from federal income tax under section 501(a) as an organization described in section 501(c)(15). Basis: Commonwealth is not an insurance company described in section 816 (other than life) within the meaning of section 501(c)(15), and it does not meet the requirements of section 501(c)(15) that its gross receipts not exceed $600,000 and that more than 50 percent of its receipts consist of premiums.Key Issues: Whether Commonwealth’s Form 1024 Application was sufficient to qualify Commonwealth for exemption from federal income tax under section 501(a) as an organization described in section 501(c)(15) such that the IRS’s denial was erroneous?Primary Holdings: No. Commonwealth failed the financial test in sectio

rovided from that definition by paragraph (1) or (7) of section 3(c) of that Act, and is identified by its legal name by the applicable investment adviser in its Form ADV (or successor form) filed with the Securities and Exchange Commission or will be so identified in the next annual updating amendment to Form ADV required to be filed by the applicable investment advisor pursuant to rule 204-1 under the Investment Advisors Act of 1940 (17 C.F.R. §275.204-1), and (ii) the entity is operated or advised by any of these types of exempt entities: bank as defined in Exemption #3, credit union as defined in Exemption #4, broker or dealer in securities as defined in Exemption #7, investment company or investment adviser as defined in Exemption #10, or venture capital fund advisor as defined in Exemption #11.Tax-exempt entity (Exemption #19)—An entity qualifies for this exemption if any of the following four criteria apply: (i) the entity is an organization that is described in section 501(c) (26 U.S.C. §501) of the Internal Revenue Code of 1986 (the “Code”) (determined without regard to section 508(a) (26 U.S.C. §508) of the Code) and exempt from tax under section section 501(a) (26 U.S.C. §501) of the Code, (ii) the entity is an organization that is described in section 501(a) (26 U.S.C. §501) of the Code and was exempt from tax under section 501(a) (26 U.S.C. §501) of the Code but lost its tax-exempt status less than 180 days ago, (iii) the entity is a political organization under section 527(e)(1) (15 U.S.C. §527) of the Code, that is exempt from tax under section 527(a) (15 U.S.C. §527) of the Code, or (iv) the entity is a trust described in paragraph (1) or (2) of 26 U.S.C. § 4947(a) of the Code (note: common-law trusts are not excluded as exempt; rather, they fall outside the definition of Reporting Company). A legal entity that is a church, a charity, a nonprofit entity, or other organization under section 501 (26 U.S.C. §501) of the Code and is exempt from income tax under secti