Originally published on Forbes.com Oct 16th, 2013
Sometimes the things that people consider charitable activities seem a bit odd. When you read about the IRS turning them down, you have to wonder what the organizers were thinking ? That was the case with the nameless organization described in PLR 201338059. My desultory attempts to penetrate the ruling’s redaction have been fruitless, so I’ll have to go with a made-up name for ORG, as the ruling refers to it. I’m going to call it Hooray For The Judges (HFTJ).
HFTJ is an outgrowth of CO-1, which I will call the Intellectual Property Sharks (IPS). IPS is a 501(c)(6) organization which concerns itself with folks working in the field of “patent, trademark, copyright, unfair competition and other intellectual property law”. 501(c)(6) organizations are trade organizations. They are exempt organizations because they are not for profit, but they are not charities, so contributions are not deductible.
Examples of 501(c)(6) organizations are the American Institute of Certified Public Accountants (AICPA) of which I am a member and the National Football League (NFL) of which I am not a member, not even on a fantasy level. When a 501(c)(6) wants to do something charitable it might sponsor an affiliated organization. There is for example the AICPA Benevolent Fund, which assists down on their luck CPAs. Picture a gray-haired guy in jeans using the free wi-fi in Barnes and Noble to work on his tax blog – well, it’s probably somebody with more troubles than he has.
So what was the charitable activity that IPS founded HFTJ for ?
HFTJ was founded to fund “the Event”. “The Event” is what the ruling calls it and that sounds good enough for me. Here is the description:
Event is an annual event for the CO-1. It is a way to show the appreciation to the Judges. The Event is also an event that furthers the CO-1’s mission of Education, Service, and Community. This function took place at the RA-1 United States Court Houses in City, on Friday May 1, 20XX. The Event is for a select crowd including the judges and CO-1’s members. The members of the public were not invited. Non-CO-1 members are also welcome to attend for non-member prices. As part of the Event, CO-1 incurs expenses such as a fee to the courthouse to use the property for the event, expense reimbursements for travel usually to judges, catering, room rental, and etc. CO-1 tallies the expenses, transfer the money to ORG and has ORG to make the payments. According to the POA, ORG does not carry out any other activities throughout year, but to support the CO-1’s activities, which is the annual Event.
So this group, apparently of lawyers, rents out the Courthouse and throws a party for their own membership and the judges. Non-members can attend, but they have to pay extra. Whatever there is that is charitable about that was not apparent to the IRS.
ORG does not qualify for exemption under section 501(c)(3) of the code because it fails to operate for a purpose described under section 501(c)(3) of the code. The sole purpose of the organization is to support CO-1 an organization exempt under section 501(c)(6) of the code. Organizations exempt under section 501(C)(6) serve the private interest of its members and not the general public
Organizations exempt under section 501(c)(3) must serve a public rather than private interest . Not only does the Judge’s dinner not serve a purpose described under section 501(c)(3) of the code but it is also for a select crowd and not the general public. Non-CO-1 members are also welcome to attend for non- member prices.
What were they thinking ?
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Afternote
I’m putting a challenge out to my readers to identify ORG and Co-1. No prize. Just the glory.