Wednesday, September 26, 2007

A little bit about 501(c)(3) organizations

From the IRS:

To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.

Organizations described in section 501(c)(3) are commonly referred to as charitable organizations. Organizations described in section 501(c)(3), other than testing for public safety organizations, are eligible to receive tax-deductible contributions in accordance with Code section 170.

The exempt purposes set forth in section 501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and the preventing cruelty to children or animals. The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency.

To be organized exclusively for a charitable purpose, the organization must be a corporation, community chest, fund, or foundation. A charitable trust is a fund or foundation and will qualify. However, an individual will not qualify. The organizing documents must limit the organization's purposes to exempt purposes set forth in section 501(c)(3) and must not expressly empower it to engage, other than as an insubstantial part of its activities, in activities that are not in furtherance of one or more of those purposes. This requirement may be met if the purposes stated in the organizing documents are limited in some way by reference to section 501(c)(3). In addition, an organization's assets must be permanently dedicated to an exempt purpose. This means that if an organization dissolves, its assets must be distributed for an exempt purpose, to the federal government, or to a state or local government for a public purpose. To establish that an organization's assets will be permanently dedicated to an exempt purpose, its organizing documents should contain a provision insuring their distribution for an exempt purpose in the event of dissolution. Although reliance may be placed upon state law to establish permanent dedication of assets for exempt purposes, an organization's application can be processed by the IRS more rapidly if its organizing documents include a provision insuring permanent dedication of assets for exempt purposes. For examples of provisions that meet these requirements, see Publication 557, Tax-Exempt Status for Your Organization.

An organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities that accomplish exempt purposes specified in section 501(c)(3). An organization will not be so regarded if more than an insubstantial part of its activities does not further an exempt purpose. For more information concerning types of charitable organizations and their activities, see Publication 557.

The organization must not be organized or operated for the benefit of private interests, such as the creator or the creator's family, shareholders of the organization, other designated individuals, or persons controlled directly or indirectly by such private interests. No part of a section 501(c)(3) organization's net earnings may inure to the benefit of any private shareholder or individual. A private shareholder or individual is a person having a personal and private interest in the activities of the organization. If the organization engages in an excess benefit transaction with a person having substantial influence over the organization, an excise tax may be imposed on the person and any organization managers agreeing to the transaction.

Section 501(c)(3) organizations are restricted in how much political and legislative (lobbying) activities they may conduct....

These are the tax rules that any 501(c)(3) organization must follow.

Here's how Wikipedia sums it up:

Organizations with [the 501(c)(3)] classification are prohibited from conducting political campaign activities to influence elections to public office. Public charities (but not private foundations) are permitted to conduct a limited amount of lobbying to influence legislation. Although the law states that "no substantial part" of a public charity's activities may be devoted to lobbying, charities with very large budgets may lawfully expend a million dollars (under the "expenditure" test) or more (under the "substantial part" test) per year on lobbying....

All 501(c)(3) organizations are also permitted to educate individuals about issues, or fund research that supports their political position without overtly advocating for a position on a specific bill. Think tanks such as the Cato Institute, Center for American Progress, and Heritage Foundation and other 501(c)(3) organizations produce reports and recommendations on policy proposals that do not count as lobbying under the tax code.

And a page that complains about the Million Mom March quotes from IRS Publication 557:

Advocacy of a particular position or viewpoint may be educational if there is a sufficiently full and fair exposition of pertinent facts to permit an individual or the public to form an independent opinion or conclusion. The mere presentation of unsupported opinion is not educational.
Method not educational.

The method used by an organization to develop and present its views is a factor in determining if an organization qualifies as educational within the meaning of section 501(c)(3). The following factors may indicate that the method is not educational.

The presentation of viewpoints unsupported by facts is a significant part of the organization's communications.

The facts that purport to support the viewpoint are distorted.

The organization's presentations make substantial use of inflammatory and disparaging terms and express conclusions more on the basis of emotion than of objective evaluations.

The approach used is not aimed at developing an understanding on the part of the audience because it does not consider their background or training.

Exceptional circumstances, however, may exist where an organization's advocacy may be educational even if one or more of the factors listed above are present.

Working Families for Wal-Mart makes the following comments about one 501(c)(3) organization:

Wal-Mart Watch calls itself “a joint project of The Center for Community & Corporate Ethics, a 501(c)3 organization devoted to studying the impact of large corporations on society, and its advocacy arm, Five Stones.” Andrew Stern is president of the Center’s board of directors, and chairman of the board of Wal-Mart Watch.

Although the Center was purportedly “established to study the impact of large corporations on society and develop a set of standards for responsible corporate behavior,” precisely which “large corporations” it has “studied” besides Wal-Mart remains unknown.

All three “entities” (Five Stones, the Center, and Wal-Mart Watch) share the same downtown Washington, D.C., address: 1730 M Street NW, Suite 601, about six blocks from the SEIU International headquarters at 1313 L Street NW.

The SEIU reportedly gave Wal-Mart Watch $1 million in seed money in late 2004. Further, according to the SEIU International’s LM-2 annual report, the SEIU funded Wal-Mart Watch (through Five Stones) in monthly amounts ranging from $250,000 to $500,000 during the last eight months of 2005, contributing $2.75 million of its reported $5 million annual budget. This arrangement allows the SEIU to disguise its contributions to Wal-Mart Watch, and concomitantly permits Wal-Mart Watch to conceal its backing from the SEIU.

So who are the Working Families for Wal-Mart?

Working Families for Wal-Mart is a group of leaders from a variety of backgrounds and communities all across America.

Working Families for Wal-Mart are customers, business leaders, activists, civic leaders, educators and many others with first-hand knowledge of Wal-Mart’s positive contributions to communities.

Again, who are the Working Families for Wal-Mart? Let's check the registration:

Administrative Contact:
Private, Registration
Domains by Proxy, Inc.
15111 N. Hayden Rd., Ste 160, PMB 353
Scottsdale, Arizona 85260
United States
(480) 624-2599 Fax -- (480) 624-2599

Again, who are the Working Families for Wal-Mart?

A new national nonprofit group with a humble name and a mission to support Wal-Mart Stores Inc. includes a female former Marine, a minister and famously wholesome singer Pat Boone.

Introduced earlier this week, Working Families for Wal-Mart, is partly funded by the Bentonville-based retail giant.

When Wal-Mart is attacked by critics, particularly unionsupported Wake Up Wal-Mart and Wal-Mart Watch, Working Families will be a SWAT team firing back quotes and sound bites.

The Washington, D. C., team of professionals behind Working Families make up the media campaign’s stealth bombers.

It only goes to show you that you have to check out so-called grass-roots organizations, whether they're 501(c)(3) or not. (I couldn't find any statement about Working Families' tax exempt status or lack thereof.) The so-called "grass roots" organization that you join may be controlled by a lawyer, a union, or a company, and may not be the innocent "Hey, kids, let's start a political campaign!" that it appears to be.

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