One of the hard parts is that many of the things you enjoy may be associated with alcohol. That’s where GameHearts, A Montana Nonprofit Corporation, came in. The Tax Court picks up the story:
On July 14, 2010, GameHearts filed a Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. In the Form 1023 GameHearts provided the following description of its activities:
GameHearts is a public benefit nonprofit organization committed to providing alternative forms of entertainment to adult members of the Kalispell area for the purpose of promoting adult sobriety. The program achieves its directive by providing free and low cost tabletop gaming activities in a supervised[,] non-alcoholic, sober environment, along with access to gaming accessories that are provided without cost to the participants. In fact, beginning players can learn and obtain free gaming materials solely for playing.
The IRS was unmoved:
In a June 3, 2013, letter respondent notified GameHearts of the conclusion that, on the basis of the information provided, GameHearts did not qualify for exemption under section 501(a) as an organization described in section 501(c)(3) because GameHearts was not organized or operated exclusively for exempt purposes. Respondent based this determination on the conclusion that (1) GameHearts failed to establish that it benefited a charitable class; (2) GameHearts’ nonexempt activities were more substantial than its exempt activities; and (3) GameHearts did not meet the requirements of section 1.501(c)(3)-1(d), Income Tax Regs., “because it did not limit activities to addicts with a low income.”
So the Tax Court got involved. Unfortunately for sober gamers in Montana, the court sided with the IRS:
While it may be laudable, in the light of the administrative record in this case promotion of sober recreation is insufficient justification here for tax-exempt status under a statute that must be construed strictly. The decisive factor here is that the form of recreation offered as therapy also is offered by for-profit entities, and GameHearts even emphasized, in its application for tax exemption, that it would introduce new participants to that for-profit recreational market and “boost the overall market shares of the industry”. We also note that GameHearts received contributions of surplus materials from the industry. While GameHearts itself does not profit from the recreation it offers and could not offer recreational gaming experiences that would compete in the for-profit recreational gaming markets, we conclude nonetheless, consistent with our holdings in Schoger Found. and Wayne Baseball, that recreation is a significant purpose, in addition to the therapy provided, because of the inherently commercial nature of the recreation and the ties to the for-profit recreational gaming industry.
We therefore hold that GameHearts does not operate exclusively for charitable purposes within the meaning of section 501(c)(3).
In other words, if there’s a market niche for sober gaming in Montana, it should be filled by somebody trying to make money.
Update: Peter Reilly has a well-researched post on this case, and he points out that the “gaming” involved was not casino gambling, which I incorrectly assumed in my initial reading of the article. I have made some modifications to my post to remove implications otherwise, and I thank Peter for his correction and for his in depth story.
Administration opposes extending bonus depreciation. Tax Analysts reports ($link):
The Obama administration does not support a tax extenders package that would make bonus depreciation permanent, Treasury Secretary Jacob Lew told House Ways and Means Committee Democrats on November 18.
The administration is willing to consider making other tax extenders permanent, including the research credit and small business expensing, as long as the American opportunity tax credit and the expanded child tax and earned income tax credits are made permanent, according to House aides.
Secretary Lew didn’t rule out a “temporary” extension of bonus depreciation, and I suspect that’s what we’ll get.
Russ Fox, IRSAC Report Has Hits and Errors:
IRSAC laments IRS funding. While I agree it would be nice to have the IRS fully funded, the problem was caused by the IRS (and especially Chairman Koskinen) and the IRS scandal. Until the IRS comes clean, Republicans in Congress rightly will not allow full funding.
This is why those who want IRS funding increased should insist on Koskinen’s resignation.
TaxGrrrl, Report Accuses IRS Of Encouraging Illegal Immigrants To File Using False Info, Identity Fraud. Well, increase their budget, then!
Jason Dinesen, Choosing a Business Entity: S-Corporation. “S-corporations share many of the same characteristics of partnerships. The biggest difference is, owners who work in the business day-to-day are paid a salary.”
Kay Bell, Start your retirement planning and saving ASAP. Starting in your 20s makes a huge difference as you approach your 60s.
Robert Wood, Lawyer Faces Up To 50 Years Prison Over Payroll Taxes. Always remit your payroll taxes, no matter who else you need to stiff.
Dave Nelson, Preparing for a cyberattack or data breach (IowaBiz.com). “In today’s world of nonstop cyberattacks, companies must prepare for when, not if, they are attacked.”
Leslie Book, International Conference on Taxpayer Rights Kicks off Today. (Procedurally Taxing).
Peter Reilly, Ownership Through LLC Kills Local Charitable Property Tax Exemption. “Disregarded For Federal Purposes Does Not Mean Disregarded For Local Purposes”
David Brunori, Business Entities Pay a Lot of State Taxes (Tax Analysts Blog):
In 2014 businesses paid about $142 billion in sales tax, or about 20.7 percent of taxes paid. More distressing is that they paid $5.8 billion more than in the prior year. The sales taxation of business inputs remains one of the greatest tax policy failings of the last 100 years. Business entities should not pay sales taxes on their services. Those taxes get passed on to someone else without their knowledge. Hiding the tax burden goes against every principle of transparent good government.
Iowa’s Department of Revenue has taken a small step to reduce the taxation of business inputs, to the outrage of all sorts of goodthinkers.
David Greenberg asks How Has Federal Revenue Changed Over Time? (Tax Policy Blog). This picture sums it up:
The corporation tax continues to decline in importance with the spread in pass-through entities. That won’t change regardless of what economic illiterates would wish.
Howard Gleckman, Would Two Year Budgeting Help Break the Fiscal Impasse? I think it would just reschedule the impasses.
TaxProf, The IRS Scandal, Day 924
Carl Davis, Congress Searches the Couch Cushions for Road Funding Money (Tax Justice Blog).
News from the Profession. At Least One SEC Commissioner Has a Sense of Humor (Caleb Newquist, Going Concern).
Things that happened on November 19. Today’s the 152nd anniversary of the Gettysburg Address, when President Lincoln dedicated the Gettysburg battlefield cemetery by saying: “The world will little note, nor long remember what we say here; while it can never forget what they did here.”
81 years later on November 19, another war claimed another young man. A little note and a little remembering here.