99 Problems and Tax-Exemption

I Got 99 Problems, but: the Society for Creative Anachronism’s Not-for-Profit Tax Status Ain’t One

(Note: This post is not aimed at anyone in particular.  It comes up a lot).

(Note: While this post mainly applies to the SCA, the same thing likely applies to many 501(c)3 organizations).

(NOTE: This is not legal advice.  Do not use this as legal advice.  It is a broad overview from websites available through Google, for God’s sake.  If your shire is in deep poop, contact your Kingdom and the SCA.  Do not do something and say “Well, Uji said I could,” because you are on your own there.)

One of the things that drives me the most crazy in the SCA is people claiming that we can’t do something (or have to do something) because we’ll lose our tax status.  It is the great bugaboo, the all-powerful gris gris, of the SCA.  It’s even mentioned in Silverwing’s Laws (http://www.schuldy.org/laws.html).  Dark cults circle fell fires in the night chanting arcane rituals whose meaning is lost to man and known only to the Night Vale City Council, sacrificing goats because if they don’t…WE’LL LOSE OUR TAX EXEMPT STATUS, PEOPLE!  DON’T YOU CARE?  WHY DON’T YOU CARE?  GRAB A GOAT YOU HEARTLESS BASTARD!

Except…it isn’t true.  Of course there are ways for us to lose our tax exempt status, but the majority of the time when this is brought up it isn’t right.  Either the person doesn’t understand what our tax exempt status means, or they think it has onerous requirements that we have to keep up with.

In general, there are six ways for a 501(c)3 to lose its tax exempt status:

  • Private benefit/inurement
  • Lobbying
  • Political campaign activity
  • Unrelated business income (UBI)
  • Failing the annual reporting obligation
  • Operation out of accord with stated exempt purpose(s)

(Adapted from http://www.nonprofitrisk.org/library/articles/How_to_Lose_Your_Tax_Exempt_Status.shtml ).

Note that under the private benefit section on that site it specifically says: “Its activities should not serve the private interests, or private benefit, of any individual or organization (other than the 501(c)(3) organization) more than insubstantially.” (Id.)

And the IRS lays out: “To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, it may not be an action organization, i.e., it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.”  (http://www.irs.gov/Charities-&-Non-Profits/Charitable-Organizations/Exemption-Requirements-Section-501(c)(3)-Organizations)

So the SCA has to be operated for the exempt purpose (education of the Middle Ages), cannot use any of its earnings to benefit any individual, cannot lobby or be political, and our events have to serve our exempt purpose but can benefit our own society.

What this means is there is no particular activity, office, organizational arrangement, belief, totem, monkey or circus that we have to continue to do without fail.  We could completely reorganize the SCA as a whole into a full on corporation, or an anarchist commune, so long as we continued to not inure any earnings or lobby the government.  We could get rid of fighting, we could get rid of A&S, or we could decide everyone in the SCA has to be a persona from Rome, or Japan, or the back of a van down by the river.  We could hold events to educate ourselves and others about the Middle Ages in the same way we do now, or a radically different way.  We don’t need knights, we don’t need heralds, we don’t need Kings or Queens…unless we want them.  And I do.

Interestingly I can also find no direct policy in the IRS rules about purchasing alcohol, and several government sites from different states talk about how 501(c)3 organizations can serve liquor or obtain liquor licenses (http://www.tabc.state.tx.us/marketing_practices/bulletins/MPB026a.pdf and http://www.liq.wa.gov/enforcement/special-occasion-license-faq).  NOTE: SCA POLICY PROHIBITS THE PURCHASE OF ALCOHOL WITH SOCIETY OR BRANCH FUNDS, EVEN IF THE IRS DOESN’T.  DO NOT DO IT.  THIS IS NOT A JOKE.

So that’s it.  There is a pretty strong list of things we can’t do, and very few of the things we say we have to do are actually required.  If you want to change something then advocate for change, and if you want to keep something then advocate for not change.  But for the love of BoD, stop saying it’s because of our tax status, or I might blow a gasket.

6 thoughts on “99 Problems and Tax-Exemption”

  1. The vastly better and more valid question is “is it consistent with our mission as a nonprofit corporation”?

    THAT is a valid question to ask. Impacting our nonprofit status… not so much.

    Max Von Halstern

    • Absolutely. Does it advance the goals of the Society, does it fit with the values of the Society, is it fun while maintaining our mission? Good questions. Tax status…eh.

  2. Dear Matthew,

    GRAB A GOAT YOU HEARTLESS BASTARD is my new default rant for any and all situations. People at nV or TC may be confused, but who cares.

    Brilliant.

    Love

    Dad

  3. I suspect our insurance is more concerned about what we do than the IRS…. but that is mostly speculation…. and still doesn’t have anything to do with our structure or overall game.

  4. The ban on the distributing of alcohol has nothing to do with our tax status. It has everything to do with our liability and what the insurance companies want to insure this crazy group. While they won’t stop the BYOB events, but they can make sure that SCA funds aren’t used to purchase said booze for the event.

    • I am more than willing to accept this is the actual reason, and I’ll edit the post soon. I continue to include it because when I was told, as a newcomer, why we couldn’t it was because of the IRS. To the point where ten years later I still believed that until I wrote this post.

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