Taxation Newsletters

Business Leagues and Trade Organizations

In order to qualify for tax-exempt status under Internal Revenue Code Section 501(c)(6), an association must show that it is devoted to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons. The organization seeking tax-exempt status as a nonprofit business league, chamber of commerce, real estate board, or professional football league must do more than indicate the name of the organization or the object of the local statute under which it is created.

Due Process in IRS Collection Actions

The Internal Revenue Service is now required to give taxpayers whose property might be levied upon pre-notification of the levy and an opportunity for a formal hearing and judicial review.

Small Employer Pension Plan Start-up Costs Credit

In order to encourage small businesses to establish and maintain retirement savings accounts for employees, Congress has enacted a law that gives a tax credit to eligible small businesses for some of the costs of establishing new eligible retirement plans. The credit equals half of the start-up costs incurred, not to exceed $500 in any tax year, and it may be claimed for qualified costs incurred in each of the three years beginning with the tax year in which the plan becomes effective.

Stock Redemptions

A stock redemption is the reacquisition of stock by a corporation in exchange for property, which includes money, securities, and indebtedness to the corporation. After a redemption, the stock may be canceled, retired, or held by the corporation as treasury stock. If the corporation redeems its stock in a manner that makes the distribution "equivalent" to a dividend distribution, then the amount received by the stockholder is a taxable dividend to the extent that it is paid out of earnings and profits.

Tax on Unrelated Business Income of Exempt Organizations

Even if a nonprofit organization is granted tax-exempt status by the Internal Revenue Service, it may still be subject to taxation on any unrelated business income. Unrelated business taxable income (UBTI) is defined as income from a trade or business regularly carried on by an exempt organization if the trade or business is not substantially related to the exempt purpose of the organization. In determining whether an activity is "regularly carried on," the Internal Revenue Service looks at the frequency and continuity with which it is pursued, and it is compared to the commercial activities of non-exempt organizations.