1. Nonprofit and Philanthropic Tax Issues in the United States
Van Leer Institute and Tel Aviv University January 2016
Mark Sidel Doyle-Bascom Professor of Law and Public Affairs University of Wisconsin-Madison Consultant (Asia), International Center for Not-for-Profit Law (ICNL), Washington DC

2. Nonprofit Tax Issues in the United States
Brief introduction (what I am and especially am not)
The American context and the varieties of nonprofits
Tax exempt organizations and the narrower range of organizations to which donations are tax deductible
Rationales for tax exemption and tax deductions
Tax exemption
The federal and state contexts
Federal (the 1023 process), then state generally

3. Nonprofit Tax Issues in the United States
Tax exemption (continued)
Types of organizations
501(c)(3) organizations: tax exempt and donations tax deductible
Purposes must be limited to one or more of the exempt purposes listed in section 501(c)(3) of the Code:
Charitable, educational, religious, scientific, literary, fostering national or international amateur sports competition, or preventing cruelty to children or animals, testing for public safety
The organizing document must not give the organization the ability or permission to engage in activities that don’t further those exempt purposes
Assets of the organization must be permanently dedicated to one or more 501(c)(3) exempt purposes

4. Nonprofit Tax Issues in the United States
Tax exemption (continued)
501(c)(3) tax exempt and donations tax deductible
Operational test:
Principal activities further exempt purposes
Insubstantial number of activities that do not advance exempt purposes
No political campaigns
Restrictions on lobbying activities (insubstantial)
Ensure that its earnings do not inure to the benefit of any individual shareholding or individual
Must not operate for benefit of private interests (i.e. founder/family)
Must not operate for the primary purpose of conducting a trade or business that is not related to its exempt purpose
Must not have purposes or activities that are illegal or violate fundamental public policy

5. Nonprofit Tax issues in the United States
Tax exemption (continued)
Types of organizations
Other 501(c) types, all tax exempt, many donations not tax deductible or specific conditions
Examples:
Civic leagues/social welfare organizations: 501(c)(4), TE but generally not TD (but may be business expenses)
Labor, agricultural and horticultural organizations: 501(c)(5), TE, donations generally not TD
Business leagues/chambers of commerce: 501(c)(6), TE, donations generally not TD
Social and recreational clubs: 501(c)(7), TE, donations generally not TD

6. Nonprofit Tax Issues in the United States
Tax exemption (continued)
Public charities and foundations
Public charity eligibility
More restrictions on private foundations than on public charities
Annual payout requirement; interlocking ownership/limits on holdings in business enterprises (excess business holdings); restrictions on self-dealing between PFs and their substantial contributors and other DPs; investments may not jeopardize carrying out exempt purposes; provisions to insure that expenditures further exempt purposes)
Issues with the federal 1023 application process
Issues in the states
Business income issues at state and federal levels

7. Nonprofit Tax Issues in the United States
Tax deductibility of donations
Federal tax, federal law, and based on types of organizations donated to
Generally, deduction limit of 50% of AGI
But 20%/30% limits and the complications abound
Generally, FMV rules on non-cash donations
The VAT debate in the US

8. Nonprofit Tax Issues in the United States
How things look from the ground in the US (at least, my ground) – a highly selected list
Federal 1023 simplification issues and problems that arise
Property tax exemption issues
State tax complications and compliance
Continued headaches over business activities (everywhere)

9. Nonprofit Tax Issues in the United States
Foreign funding issues (in so many countries)
The menu of options:
Ban
Tax
Regulate donees and/or donors
Treat as local organizations
Foreign exchange regulations
Sanctions regulation
No regulation
Other options?