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Credit Card Rebates (aka Points) Eligible for Charitable Deduction

July 13, 2010

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The IRS recently decided, in PLR 201027015, that a taxpayer who directs her credit card “rebates” to a charitable organization is not required to include the amount in gross income and is entitled to a charitable deduction.

The facts are simple: taxpayers make purchases using their credit cards and as a result of the purchases, they earn “rebates.”  These rebates equal 1% of the taxpayer’s purchases, and the taxpayer can either receive cash back or direct the cash to a charitable organization.  The IRS holds that these rebates are not includable in the taxpayer’s gross income becase these “rebates” are adjustments to the purchase price paid for the item.  The problem is: what item??  Presumably the taxpayer purchased several items from several different retailers.  These facts are clearly different from the cell phone company who charges “$50” for my phone by making me pay $200 up front and requiring me to

Here’s the Cheese, but Forget the Wine

July 11, 2010

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The IRS, in PLR 201025078, denied exemption under section 501(c)(7) to a winemaking club.   The club was formed for the specific purpose “to encourage the appreciation of winemaking, promote the responsible use of wine, educate wine tasters and home wine makers, and to promote and support the healthful creation of wine made without sulfites.”  Although the club, had it been properly managed, could have qualified under section 501(c)(3) as an educational organization, the club failed to qualify as exempt under any section due to its commercial nature.  Specifically, the club allowed anyone to become a “member” for a fee, didn’t allow its “members” any actual rights, and didn’t allow its “members” enough socializing amongst each other.  Perhaps if the wine club had been more exclusive in its membership and hosted more parties among its members, the IRS would have granted exemption.  Of course, the club should have also considered adding a few more disinterested board members and

Fertility Clinic not so Fertile (or Exempt)

July 10, 2010

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In Free Fertility Foundation v. Commissioner, the Tax Court affirmed the IRS’ denial of 501(c)(3) status to The Free Fertility Foundation—an organization that provides its founder’s sperm “free of charge to women seeking to become pregnant through artificial insemination or in vitro fertilization.” Interestingly, the court stated the “free provision of sperm may, under appropriate circumstances, be a charitable activity.” But The Free Fertility Foundation did not qualify because the class of potential beneficiaries is “not sufficiently large to benefit the community as a whole.” After all, the class of potential beneficiaries is limited to those that want the founder to be the biological father of their children. Further, the founder and his father choose recipients from applicants based on a “very subjective, and possibly arbitrary” process that includes a questionnaire on topics such as an applicant’s education, ethnicity, geographic location, fertility history and contribution

Form 1023 – To File (Now) Or Not To File (Wait), That Is The Question

The date when an organization files its IRS Form 1023 application for federal tax-exempt status has an effect on the date the organization will be considered tax-exempt under Section 501(c)(3). If an organization files Form 1023 within 27 months after the end of the month in which it was legally formed, and the IRS approves the application, the effective date of Section 501(c)(3) status will be retroactive to the date of formation. If an organization does not file within 27 months of formation, Section 501(c)(3) status is generally effective as of the date it files the Form 1023 application (the postmark date).

For organizations with gross receipts exceed more than $10,000 annually, the U.S. Department of Treasury generally requires a fee of $850 to process a Form 1023 application (for organizations with gross receipts do not exceed $10,000 annually, the fee is $400). However, the IRS has been developing an

Overview of Joint Venture Rules

July 1, 2010

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Overview of Joint Venture Rules

July 1, 2010

Authored by: Keith Kehrer

Joint ventures between Section 501(c)(3) organizations and for-profit parties are becoming more and more common.  The attached memorandum (which may be obtained by clicking the link below) provides a brief overview of tax issues related to joint ventures between tax-exempt and for profit entities:

Structuring Joint Ventures

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