Flirting with Disaster: A Look at How Tax-Exempt Status Can Be Revoked

Non Profit, Tax-ExemptWhen a non-profit loses its tax-exempt status under the Internal Revenue Code, it is frequently the end of the organization.

Sometimes the problem is easily resolved; an exempt organization that has its status revoked because it failed to file its annual returns on Form 990 can be reinstated retroactively if it acts promptly. See Rev. Proc. 2014-11, 2014-3 I.R.B. 411; see also Rev. Proc. 2017-5, 2017-1 I.R.B. 230. But in most other cases, the loss of the exemption is a disaster:

  • First, the organization will be liable for income taxes that were not part of its budget.
  • Second, its sources of funding will likely disappear, as donors will no longer receive a tax deduction, and governmental grants may be conditioned upon tax-exempt status.
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Tax Shelters: STARS Economic Substance Ruling In Wells Fargo Does Not Follow Conjunctive Test

STARS, TaxesThe litigation over Wells Fargo’s STARS transaction took another interesting turn last week, as the district court had to rule on the legal implications of the jury’s verdict. Wells Fargo & Co. v. United States, No. 09-CV-2764 (PJS/TNL), 2017 U.S. Dist. LEXIS 80401 (D. Minn. May 24, 2017). The litigation focused on whether STARS was a sham transaction that should not be respected for tax purposes because it lacked economic substance.

STARS, an acronym for Structured Trust Advantaged Repackaged Securities, was a transaction promoted to U.S. banks by a British financial-services company. Under this arrangement, Wells Fargo placed assets in a trust managed by a trustee based in the United Kingdom, making the assets subject to U.K.… Read More