WCTEO 2020 Highlights: Charitable Purpose in the 21st Century

The following are some of the highlights from the session on Charitable Purpose in the 21st Century at the 2020 Western Conference on Tax Exempt Organizations (WCTEO):

  • Historical context: Rev. Rul. 71-447: “All charitable trusts, educational or otherwise, are subject to the requirement that the purpose of the trust may not be illegal or contrary to public policy. … Although the operation of private schools on a discriminatory basis is not prohibited by Federal statutory law, the policy of the United States is to discourage discrimination in such schools.”
  • Historical context: Bob Jones v. United States: “Guided, of course, by the Code, the IRS has the responsibility, in the first instance, to determine whether a particular entity is “charitable” for purposes of § 170 and § 501(c)(3). … We emphasize, however, that these sensitive determinations should be made only where there is no doubt that the organization’s activities violate fundamental public policy.”
  • Project Veritas and Illegality (Sam Brunson)

In various private letter rulings, the IRS has reiterated this idea the illegal activities disqualify would-be exempt organizations from a federal income tax exemption. In 2013 (in PLR 201325015, which I can’t find in a linkable online source), the IRS denied exemption to a religious organization that practiced polygamy on the basis that polygamy violated state law and state and federal policy. In 2011, the IRS denied a nonprofit organization formed to dispense medical marijuana because selling marijuana violates federal law.

Over at the Volokh Conspiracy, Eugene Volokh asserts that the IRS cannot constitutionally deny tax exemptions to “hate groups” based on their views, abhorrent that they may be. … Volokh … categorizes that “fundamental public policy” rule as relating solely to actions (in the case of Bob Jones University, racial discrimination), and not to what the organization advocates. … [I]t’s probably fair to argue that the government shouldn’t subsidize bad speech. Just like “fundamental public policy” creates a definitional problem, “bad speech” has a definitional problem. But even if we assume particular speech is bad (and I think it’s fair to assume that white nationalist speech is bad), we run into the question of what constitutes a subsidy.

Additional Resources on Our Blog

Tax-Exemption and Public Policy – Bob Jones University

Grants to Individuals and Businesses – Part One, Two, Three, and Four

Economic Development as a 501(c)(3) Activity