No "insider" inurement finding reinstates charitable exemption.A 1969 letter ruling held that the United Cancer Council, Inc. (UCC An abbreviation for the Uniform Commercial Code. ) was a tax-exempt organization and an eligible charitable donee The recipient of a gift. An individual to whom a power of appointment is conveyed. donee n. a person or entity receiving an outright gift or donation. DONEE. . In 1984, UCC entered into a five-year contract with Watson & Hughley Co. (W&H), a professional fundraiser. From 1984-1989, W&H helped UCC conduct a nationwide direct-mail fundraising campaign. Under the contract, UCC received approximately $2.3 million in net fundraising revenue. W&H received more than $4 million in fees from UCC and derived substantial income from exploiting the co-ownership rights in UCC's mailing list that had been granted under the contract. On Nov. 2, 1990, the IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. revoked the favorable letter ruling retroactively to June 11,1984. UCC initiated a Tax Court petition for a declaratory judgment declaratory judgment In law, a judgment merely declaring a right or establishing the legal status or interpretation of a law or instrument. It is binding but is distinguished from other judgments or court opinions in that it includes no executive element (an order that that it qualified as a tax-exempt organization and an eligible charitable donee. In United Cancer Council, Inc., 100 TC 162 (1993), the Tax Court found That W&H was an "insider" for purposes of the inurement in·ure also en·ure tr.v. in·ured, in·ur·ing, in·ures To habituate to something undesirable, especially by prolonged subjection; accustom: prohibitions of Secs. 501(c)(3) and 170(c)(2)(C). There was an inurement of net earnings to W&H. Thus, the Tax Court held that UCC failed to qualify as a tax-exempt organization and an eligible charitable donee. The Tax Court also held that the Service's retroactive revocation of the favorable ruling was not an abuse of discretion. On Feb. 10, 1999, the Seventh Circuit reversed the Tax Court's decision, holding that the Tax Court's classification of W&H as an insider was based on the fundraising contract. Nothing in the facts supported the finding that W&H seized control of UCC and became an insider--triggering the inurement provision and destroying the exemption. The case was remanded to determine if UCC was being operated to a significant degree for W&H's private benefit. Sec. 4958 imposes excise taxes on excess benefit transactions, an intermediate sanction on certain tax-exempt organizations. (See Tax Clinic, "Reasonable Compensation Rules," p. 300, this issue.) However, Sec. 4958 is generally effective for excess benefit transactions occurring after Sept. 13, 1995--subsequent to the years involved in United Cancer Council, Inc. FROM STUART Stuart, British royal family Stuart or Stewart, royal family that ruled Scotland and England. The Stuart lineage began in a family of hereditary stewards of Scotland, the earliest of whom was Walter (d. R. JOSEPHS, CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. , Tax ASSISTANCE PRACTICE (TAP), SAN DIEGO, CA |
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