Originally published on Forbes.com.
Somehow I had managed to get through over 35 years of tax practice without realizing a]portion of the Internal Revenue Code is dedicated to bingo – Section 513(f) – Certain bingo games. Section 513 is about unrelated trade or business income of not-for-profits. If a not-for- profit runs a business unrelated to its exempt status, it is taxed on the profits. With anything like that there are going to be exceptions and bingo is one of them.
For 501(c)(3) Status You Need More Than Bingo
Even though running bingo games does not make for UBTI, you cannot qualify an organization for exempt status if what it does is mostly run bingo games. That was more or less the essence of Private Letter Ruling 201603039. Private letter rulings are redacted. The internal evidence on this one is very strong that it is a “home corporation” of a Knights of Columbus Council. I even have a pretty strong indication of which one, but they did not respond to my inquiry, so I am going to call the organization in the ruling the Santo Bingo Society, Inc which supports the Father Guido Sarducci Council. In case you are not familiar with the important work of Father Sarducci, you can check this out.
Knights Of Columbus Councils And Home Corporations
KC councils are unincorporated associations which file their Forms 990 under the group exemption of the Knights of Columbus. Knights of Columbus is exempt under 501(c)(8) – fraternal beneficiary societies providing for the payments of life, sick accident or other benefits to members. If you just want to be fraternal with no other benefits you go with 501(c)(10). If you look at the Knights of Columbus Form 990, you will note that most of its financials are about its insurance operation which makes up the bulk of its over $2 billion in revenue. The ]CEO of Knights of Columbus – Carl Anderson, the Supreme Knight (no kidding) – had reportable compensation over $2 million in 2013.
At any rate, since the councils are unincorporated associations, they can’t take title to real estate or, not this could be all that important, have liquor licenses. Hence the “home corporations”. The home corporations are run by council members. There is also some material that indicates that home corporations are sometimes a source of tsoris to the national organization According to tax advice put out by the Supreme Advocate, “home corporations” may qualify for exemption under 501(c)(2) – title holding company -or 501(c)(7) – social club.
Let’s Try 501(c)(3)
Santo Bingo took a shot at 501(c)(3), which would allow for deductible contributions and conceivably a property tax exemption. It was shot down.
Your organization’s activities consist of conducting bingo games, the sale of pull tabs and scratch games, and operating and maintaining your properties to support these gaming activities and the activities of the , an organization exempt from taxation under section 501(c) (8). Conducting gaming activities are not activities that further charitable or educational purposes within the meaning of section 501(c)(3). In addition, maintaining and operating property for the benefit of a section 501(c)(8) fraternal benefit society are not activities that further exempt purposes under section 501(c)(3). Your organization’s charitable programs, while laudable, are insubstantial and incidental in comparison to your gaming activities and your activities in support of the section 501(c)(8) organization.
The agent illustrated the lack of charitable focus with excerpts from the minutes which go on at some length. For example there was
At the December 14, 20XX Board of Directors Meeting, the minutes stated that since the new bingo manager was hired, reports have been accurate and on time. The president discussed employee quarterly performance bonuses based on increased gaming revenue volumes and decreased gaming payouts for prizes and related expenses. The minutes also indicated the State would audit their bingo activities 3 times annually. The minutes discussed the building expansion and improvement projects, namely: entrance to bingo hall, addition to , rest rooms, small kitchen, office and storage, increasing bar area and meeting room, and new coat rack for bingo hall with heavy duty hangers.
Is This A Job For The IRS?
The portion of the IRS that concerns itself with exempt organizations is reeling from the fallout of the interminable scandal. It has come in for criticism from the other side now for its granting of exempt status to Karl Rove’s Crossroads GPS, which was pretty explicitly started to avoid spending disclosure for poltical activity. And here we have the IRS worrying about what organizations can run bingo. Paul Streckfus has been following it in great detail in his EO Tax Journal and is advocating getting the IRS out of these matters entirely.
]With its surrender to Crossroads GPS, I believe the argument for getting EO regulation out of the IRS has just been made stronger.The IRS as an institution has now demonstrated repeatedly that it is totally incapable of providing meaningful regulation of the EO sector. I recognize that Congress is partly responsible for these repeated IRS failures, but that excuse only goes so far.
I think he is right. The only down side is that there would be many fewer amusing private letter rulings.
Afternotes
501(c) Let Me Count The Ways
Most people have probably heard of 501(c)(3), more or less the gold standard of exempt organization, because they can get tax deductible organizations. Unlike me, they probably never wondered how high it goes after 3. In this discussion we have only made it up to 10. It happens that there are 29 flavors of 501(c) ice cream. Probably too many, but watch what happens if it is proposed to eliminate one.
Why I Love Bingo
I have a certain affection for bingo, from a glorious time in youth. If you look at my twitter profile you will have a clue. While my parish St. John’s in Fairview NJ was building a new school we were on half sessions in the church basement. And the third grade had the bingo board in the corner. Sr. Christine used it as an aid in teaching us multiplication which has given me an affinity for multiples of 15. In the twitter picture, I’m at the far left of the tall boys to the right of the Blessed Mother and right under O68. Thanks to the half sessions we got to occupy the little league field while public school kids toiled away.
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