The Law of Tax-Exempt Organizations, 2021 Cumulative Supplement. Bruce R. Hopkins
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Fifth Edition (2018): cited as Private Foundations
10 Starting and Managing a Nonprofit Organization: A Legal Guide, Seventh Edition (2017): cited as Starting and Managing
11 The Tax Law of Associations (2006): cited as Associations
12 The Tax Law of Charitable Giving, Sixth Edition (2021): cited as Charitable Giving
13 The Tax Law of Unrelated Business for Nonprofit Organizations (2005): cited as Unrelated Business
14 Tax‐Exempt Organizations and Constitutional Law: Nonprofit Law as Shaped by the U.S. Supreme Court (2012): cited as Constitutional Law.
The second, fourth, ninth, and twelfth of these books are annually supplemented.
Updates on all of the foregoing subjects (plus The Law of Tax‐Exempt Organizations) are available in Bruce R. Hopkins' Nonprofit Counsel, the author's monthly newsletter, also published by John Wiley & Sons.
CHAPTER ONE Definition of and Rationales for Tax‐Exempt Organizations
§ 1.1 Definition of Nonprofit Organization (a) Nonprofit Organization Defined
§ 1.1 DEFINITION OF NONPROFIT ORGANIZATION
(a) Nonprofit Organization Defined
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This point is sometimes overstated, as illustrated by a state's supreme court's proclamation that “[n]on‐profit corporations do not have owners,” adding that “non‐profit corporations do not have shareholders or any other way for third parties (whether individuals or entities) to assert a similar ‘ownership’ role” (Farrow v. Saint Francis Medical Center, 407 S.W.3d 579, 593 (Sup. Ct. Mo. 2013)).
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An individual, desiring to engage in certain activities appropriate for a nonprofit entity, formed, with advice of legal counsel, a nonprofit corporation. Matters did not go well with this entity, programmatically or financially. This individual, who was the corporation's incorporator and president, and a director, filed a retroactive election for S corporation status for the entity as of the date of incorporation. This was done in an effort to enable him to report passthrough operating losses on his personal income tax returns. To this end, he claimed that he held an ownership interest in the organization equivalent to that of a shareholder. The IRS disagreed, disallowing the passthrough losses. The U.S. Tax Court upheld the IRS's position, rejecting the argument that this individual held “exclusive beneficial ownership” of the corporation and writing that “there is no interest in a nonprofit corporation equivalent to that of a stockholder in a for‐profit corporation who stands to profit from the success of the enterprise” (Deckard v. Comm'r, 155 T.C. No. 8 (2020)).
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Charleston Area Medical Center, Inc., CAMC Health Education and Research Institute, Inc. v. United States, 940 F.3d 1362 (Fed. Cir. 2019); Wichita Center for Graduate Medical Education v. United States, 917 F.3d 1221 (10th Cir. 2019);
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CHAPTER TWO Overview of Nonprofit Sector and Tax‐Exempt Organizations
§ 2.1 Profile of Nonprofit Sector
§ 2.2 Organization of IRS (a) IRS in General (b) Tax Exempt and Government Entities Division
§ 2.1 PROFILE OF NONPROFIT SECTOR
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According to data provided by the IRS, as of the close of the federal government's fiscal year 2019, there were 1,718,233 recognized tax‐exempt organizations.21 Within this group of organizations are 1,365,744 charitable (including educational, scientific, and religious) entities, 79,808 social welfare organizations, 62,700 business leagues, 49,126 social clubs, 45,888 labor and agricultural organizations, 41,756 fraternal beneficiary organizations, 28,575 veterans' organizations, 15,560 domestic fraternal beneficiary societies, 9,406 cemetery companies, 6,050 voluntary employees' beneficiary association, 5,373 benevolent life insurance associations, 4,421 title‐holding corporations, 1,677 state‐chartered credit unions, 671 holding companies for pensions and other entities, 668 instrumentalities of the federal government, 659 mutual insurance companies, 88 supplemental unemployment compensation trusts, and 65 other types of exempt entities. In addition, according to the IRS, there are 39,167 political organizations and 214 religious and apostolic associations.
Other data from the IRS reveals that tax‐exempt organizations filed 1,118,006 annual information returns during that fiscal year. California was the jurisdiction for 113,916 of these filers, followed by Texas (77,149), New York (73,391), Florida (54,886), Pennsylvania (49,699), Ohio (46,819), and Illinois (43,816). The state with the fewest filers was Wyoming (3,637).
During this period, there were 101,880 closures of applications for recognition of tax‐exempt status, with 92,439 applicants approved and 66 disapproved. Entities receiving recognition of exemption included charitable organizations (86,383), social welfare organizations (1,442), business leagues (1,432), and social clubs (1,153). The IRS received 3,070 notices of intent to operate as social welfare organizations, of which 456 were rejected. The agency examined 13,433 returns during this period (including those involving retirement plans, government entities, and tax‐exempt bonds), including those in the Form 990 series (1,335), other annual returns (e.g., Form 990‐PF) (302), employment tax returns (4,495), Forms 990‐T (427), and Forms 4720 (383).
Charitable giving in the United States in 2019 is estimated to have totaled $449.64 billion.22 Giving by individuals in 2019 amounted to an estimated $309.66 billion; this level of giving constituted 69 percent of all charitable giving for the year. Grantmaking by private foundations is an estimated $75.69 billion (17 percent of total funding). Gifts in the form of charitable bequests in 2019 are estimated to be $43.21 billion (10 percent of total giving). Gifts from corporations in 2019 totaled $21.09 billion (5 percent of total giving for that year).
Contributions to religious organizations in 2019 totaled $128.17 billion (29 percent of all giving that year). Gifts to educational organizations amounted to $64.11 billion (14 percent); to human service entities, $55.99 billion (12 percent); to foundations, $53.51 billion (12 percent); to health care institutions, $41.46 billion (9 percent); to public/society benefit organizations, $37.16 billion (8 percent); to international affairs entities, $28.99 billion (6 percent); to arts, culture, and humanities entities, $21.64 billion (5 percent); and to environment and animals groups, $14.16 billion (3 percent).
Some of the most recent data for the charitable sector66.1 are for 2015.