Final Regulations Clarify Sanctions Against Tax-Exempt Organizations

April 08, 2008 The Legal Intelligencer

The IRS has issued final regulations (T.D. 9390) that clarify the interaction between the substantive requirements for tax exemption under Section 501(c)(3) of the Internal Revenue Code and the so-called "intermediate sanctions" that may be imposed under Code Section 4958 on individuals who engage in "excess benefit transactions" involving tax-exempt organizations. These final regulations replace proposed regulations that were issued in 2005.

An organization may elect to be exempt from federal income tax persuant to Section 501(c)(3) of the code if it is organized and operated exclusively for religious, charitable, scientific or educational purposes. In addition to this "charitable purpose" requirement, no part of the net earnings of an exempt organization may inure to the benefit of any private individual, no substantial part of an exempt organization's activities may include attempts to influence legislation, and an exempt organization may not intervene in political campaigns. Any organization that violates these operational rules could have ts tax-exempt status revoke by the IRS.

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