Nonprofit Corporation Denied Tax-exempt Status

News from RWHSG

Posted by Kim Chen on May 7th, 2018

A Texas domestic nonprofit corporation, established to deliver quality management consulting services to medical providers and advance government programs through patient safety initiatives, was denied tax-exempt status. The entity was to provide low-income housing to individuals, “uplifting services for the elderly and veterans,” and internal auditing services. IRC Sec. 501(c)(3) provides that an organization be operated exclusively for exempt purposes and that no part of its net earnings should benefit any private shareholder or individual. The Tax Court held that the entity was not qualified for tax-exempt status because it would operate for the benefit of its founder and sole employee. Furthermore, the services would be commercial in nature, as ordinarily carried out by ventures organized for profit. The entity would not serve an exempt purpose and public interest, would not lessen the government’s burden, and would solely benefit its founder and service provider to further his consulting career and pay him significant annual compensation. Abovo Foundation, Inc., TC Memo 2018-57 (Tax Ct.).