The idea behind Code Section 502’s prohibition on exemption for Feeder Organizations is that one cannot convert a for-profit business into a charity simply by contributing all of the profits to charitable organizations. The policy rationale is that permitting businesses to operate on a tax-free basis just because they donate their proceeds to charity permits unfair competition in the marketplace.… Continue Reading
The well-meaning have been advising exempt organizations to “operate like a business” for years. If the organization is a Section 501(c)(3) organization, operating too much like a business can cost it its tax-exempt status due to the “Commerciality Doctrine.” Practically, the issue of commerciality usually arises when a tax-exempt organization engages in any endeavor for which a clear for-profit counterpart exists in the marketplace. Typical examples include publishing, consulting and sales of arts and crafts. Today, the Commerciality Doctrine is a threat to the increasingly popular movement toward social enterprises. Those that choose to organize as Section 501(c)(3) organizations should only do so after a thorough review of the Commerciality Doctrine.
… Continue Reading