William Mitchell Law Review

Publication Information

31 William Mitchell Law Review 1 (2004-2005)


Most “for-profit” or “business” activities of exempt organizations take one of three forms: (A) The exempt organization may undertake to perform the business activities within the existing structure of the exempt organization. (B) The exempt organization may form a “taxable” subsidiary or affiliate which will perform the business activities. (C) The exempt organization may “partner” with other individuals and entities (both nonprofit and for-profit) to form a corporation, limited liability company (LLC), partnership, joint venture, strategic alliance, or other collaborative effort which will perform the “for-profit” activities. Depending in part upon which of these forms is chosen, any business activities by an exempt organization may result in: (i) income taxes being imposed upon the exempt organization or the “for-profit” entity; (ii) the exempt organization losing its tax-exempt status; (iii) excise taxes being imposed by the Internal Revenue Service (IRS) on the individuals and for-profit companies (as well as on the managers of the exempt organization) with whom the tax-exempt organization conducts a business activity; (iv) a regulatory action brought against the organization by federal or state governmental authorities; or (v) all of the above. This article gives an overview of the regulations, Treasury rulings, IRS manuals, and case law that become important when an exempt organization decides to engage in business activity.