Final week, my co-blogger posted about PLR 202417022, which revoked the tax exemption from a corporation that apparently hosts road festivals that promote hashish companies and educate attendees about the usage of hashish . The IRS has acknowledged that this group doesn’t qualify for tax-exempt standing for quite a few causes, certainly one of which is that it “promotes[s] and have interaction[s] in actions that contravene federal legislation[.]”Contemplating that this exercise is inconsistent with tax-exempt standing, the IRS relied on a 1975 Income Ruling that acknowledged that a corporation couldn’t qualify for tax-exempt standing if its major exercise was encouraging the its members to interact in acts of civil disobedience. As my co-blogger factors out, this place – that a corporation that helps or engages in civil disobedience can’t qualify for tax-exempt standing. – has the potential to be utilized in nefarious methods.
In 2014, I wrote an article criticizing the usage of the doctrine of illegality within the context of hashish, particularly for 501 (c) (4) organizations. In 2016, I developed the evaluation to state and native authorities entities, arguing that the illegality doctrine doesn’t apply to them. The historical past of the IRS's use of the illegality doctrine makes clear how harmful the doctrine might be when a corporation goals to coach the general public that one thing that’s presently unlawful can be good. The NORML group has battled for years with the IRS over the road between defending the unlawful use of hashish (which the IRS argued would trigger its tax-exempt standing to be revoked) and defending the usage of hashish if and when it was authorized (which it wouldn't be). When a corporation educates the general public that an unlawful substance is definitely good for you, the road can get blurred.
The IRS's makes an attempt to use the rule to organizations “serving homosexuals” make it even clearer how problematic this design is. For instance, a 1971 Normal Council Memorandum addressed a corporation that sought to coach the general public about homosexuality with the objective of attaining “full public acceptance of homosexuals as a kind of regular human .[] being[].” The IRS denied tax exemption due to state legal guidelines criminalizing sodomy. In 1973, the IRS granted tax-exempt standing to a corporation that offered social companies to the homosexual neighborhood, however famous that the group certified for the tax exemption a minimum of partially as a result of “[t]The group expressly rejects … looking for to alter neighborhood attitudes towards homosexuals” and noting that “[t]The maladaptive and a minimum of doubtlessly offensive nature of gay exercise is additional confirmed by the continued prohibition of nearly all types of sodomy by the prison legal guidelines of the District of Columbia and all however three of the assorted states. Even till 1977, in a GCM that reversed The IRS's place on denying tax-exempt standing to organizations that search to alter the general public's notion of homosexuality, the IRS warned that “[i]If a corporation promoted or immediately promoted gay practices, it might not be entitled to exemption [at least in part because] in lots of jurisdictions, gay practices are unlawful.” I deliver this all up not solely to remind everybody how dangerous the seventies had been, and the way dangerous they had been in some respects, however for instance how troublesome it’s to attract the road between the advocate for one thing that’s unlawful (resembling intercourse, hashish, or civil rights) and have a function that’s unlawful.
The PLR 2024 on the group that hosts a hashish road pageant doesn’t present sufficient information to know the place this line is drawn or whether it is applicable in that case. It needs to be based mostly as a substitute on different causes that the group doesn’t qualify for tax exemption, resembling the truth that it has failed to supply monetary data or submit an informative assertion.
– Benjamin Leff
Supply: https://lawprofessors.typepad.com/nonprofit/2024/05/illegality-doctrine-and-cannabis-advoicacy-organizations.html
