Use Caution when Pursuing "Business" Activities

By: Zachary S. Kester, JD, LLM, CFRM – Charitable Allies

The modern nonprofit sector is vibrant and adaptable, especially after coming off the heels of the largest and longest recession in modern history. Many charities are pursuing opportunities to ensure stability by providing services for a fee and by selling goods. Consultants even hold seminars on developing earned income streams. Most charities, however, do this at some risk, and should be cautious in how they expand and manage business-related activities.

As recently as this month the IRS has denied or revoked the tax exempt status of charities for their activities being too “commercial”.

The IRS relies on the “commerciality doctrine”, a little-known, entirely judge-made doctrine. The commerciality doctrine prohibits a charity from directly engaging in activities in a commercial manner, especially where the activity is conducted in substantially the same manner as by for-profit organizations.

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Charitable Allies (www.charitableallies.org) is your go-to cost-effective provider of legal services to nonprofit organizations from one question, to employment issues, to a complex merger. Contact Zac Kester, Executive Director, at 317-429-1649 or zkester@charitableallies.org with your questions.