Description
Stay current with rapidly evolving tax-exempt regulations and emerging issues
The 2026 Supplement to the 13th edition of The Law of Tax-Exempt Organizations updates and expands this authoritative resource with the most recent statutes, regulations, rulings, and court opinions affecting nonprofit organizations. Compiled by renowned authors and legal experts Bruce R. Hopkins and Shane Hamilton, this supplement maintains the accessible language and clear analysis that professionals have relied upon, while addressing the critical developments that have emerged since the 13th edition's publication.
The supplement is accompanied by updated online resources, including the latest IRS Private Letter Rulings, Technical Advice Memoranda, and Counsel Memoranda, as well as new reference materials reflecting recent regulatory changes. Key topics covered in this supplement include:
- Artificial intelligence applications in nonprofit operations, including governance considerations, compliance obligations, and ethical deployment frameworks
- Recent legislative changes affecting charitable giving, donor reporting requirements, and tax incentives for charitable contributions
- Evolving standards for nonprofit governance in response to heightened regulatory scrutiny and best practices in board oversight
- Developments in tax-exempt status determinations, including new IRS guidance on mission-related activities and unrelated business income
- Cybersecurity and data protection requirements for tax-exempt organizations handling sensitive donor and constituent information
- Updated provisions affecting religious organizations, educational institutions, healthcare entities, and social welfare organizations
Tax-exempt law continues to evolve with unprecedented speed, driven by legislative action, regulatory guidance, and emerging operational challenges. The 2026 Supplement to The Law of Tax-Exempt Organizations provides nonprofit leaders, boards, and compliance professionals with essential updates to ensure their organizations remain current and compliant with all applicable statutes, regulations, and best practices.
Table of Contents
About the Author xiii
Preface xv
Book Citations xix
1 Definition of and Rationales for Tax- Exempt Organizations 1
§ 1.2 Definition of Tax- Exempt Organization 1
§ 1.4 Political Philosophy Rationale 1
2 Overview of Nonprofit Sector and Tax- Exempt Organizations 3
§ 2.1 Profile of Nonprofit Sector 3
§ 2.2 Organization of IRS 4
(b) Tax Exempt and Government Entities Division 4
3 Tax Exemption: Source and Recognition 5
§ 3.2 Recognition of Tax Exemption 5
(a) General Rules 5
§ 3.3 Recognition of Public Charity, Private Foundation Status 5
4 Organizational, Operational, and Related Tests and Doctrines 7
§ 4.3 Organizational Test 7
(a) Statement of Purposes 7
(b) Dissolution Requirements 8
(i) Charitable Organizations 8
(ii) Noncharitable Organizations 8
(iii) Disclosure Requirements 8
(e) Rules for Limited Liability Companies 9
§ 4.4 Substantial Nonexempt Purposes 10
(a) Meaning of Exclusively 10
(b) Substantial Nonexempt Purpose Test 11
(c) Primary Purpose Test 15
(d) Meaning of Insubstantial 19
(e) Noncharitable Exempt Purposes 21
§ 4.5 Operational Test 23
(a) Operational Test for Charitable Organizations 23
(b) Activities Test 25
(c) Quantification of Activities 25
(d) Action Organizations 25
(e) Aggregate Principle 25
§ 4.6 Feeder Organizations 26
§ 4.7 Commensurate Test 29
§ 4.9 Commerciality Doctrine 30
(c) Origin of Doctrine 30
(e) Other Court Applications of Doctrine 31
(f) Elements of Commerciality 32
(g) IRS Ruling Policy 32
(h) Contemporary Perspective on Doctrine 33
5 Nonprofit Governance 35
§ 5.3 Board Duties and Responsibilities 35
(a) Duty of Care 35
(b) Duty of Loyalty 35
(c) Duty of Obedience 35
6 Concept of Charitable 37
§ 6.2 Public Policy Doctrine 37
(a) General Principles 37
(e) Affirmative Action Principles 38
§ 6.3 Collateral Concepts 38
(b) Means- to- End/Instrumentality Rule 38
(i) Illegality Doctrine 39
7 Charitable Organizations 43
§ 7.2 Relief of Distressed 43
(b) Disaster Relief Programs 43
(ii) Public Charities 43
§ 7.3 Credit Counseling 44
(a) Initial Evolution of Exemption Law 44
§ 7.6 Promotion of Health 44
(a) Hospital Law in General 44
(b) Additional Statutory Requirements for Hospitals 45
(ii) Community Health Needs Assessment 45
(iii) Financial Assistance Policy 46
(vii) Mandatory IRS Review of Tax Exemption 46
(m) Accountable Care Organizations 46
§ 7.13 Consortia 47
(a) General Principles 47
(c) Cooperative Arrangements 47
§ 7.14 Fundraising Organizations 47
(a) General Principles 47
(b) Application of Commensurate Test 47
§ 7.15 Government Entities as Charitable Counterparts 48
§ 7.16 Other Categories of Charity 49
(c) Promotion of Sports 49
§ 7.18 Charitable Grants to Individuals 49
8 Educational Organizations 51
§ 8.3 Educational Institutions 51
(a) Schools, Colleges, and Universities 51
§ 8.4 Instruction of Individuals 51
§ 8.5 Instruction of Public 52
9 Scientific Organizations 53
§ 9.5 Technology Transfer 53
10 Religious Organizations 55
§ 10.1 Constitutional Law Framework 55
(c) Internal Revenue Code Provisions 55
§ 10.3 Churches and Similar Institutions 55
(b) Associational Test 55
§ 10.8 Apostolic Organizations 56
11 Other Types of Charitable Organizations 57
§ 11.2 Amateur Sports Organizations 57
§ 11.6 Charitable Risk Pools 57
12 Public Charities and Private Foundations 59
§ 12.1 Federal Tax Law Definition of Private Foundation 59
(a) Private Foundation Defined 59
(g) Organizational Test 59
§ 12.3 Categories of Public Charities 59
§ 12.5 Donor- Advised Funds 59
§ 12.6 Endowment Funds 60
(b) College and University Endowment Tax 60
13 Social Welfare Organizations 65
§ 13.1 Concept of Social Welfare 65
(a) General Rules 65
(b) Benefits to Members 65
§ 13.2 Requirement of Community 65
(a) Homeowners’ and Other Property Owners’ Associations 65
§ 13.3 Conduct of Business 66
§ 13.4 Advocacy Organizations 67
14 Business Leagues and Similar Organizations 69
§ 14.1 Concept of Business League 69
(a) General Principles 69
(iii) Dues 69
(e) Professional Organizations 69
(g) Certification Programs 70
§ 14.2 Disqualifying Activities 70
(c) Performance of Particular Services 70
§ 14.3 Chambers of Commerce 70
15 Social Clubs 71
§ 15.1 Social Clubs in General 71
(b) Membership Requirement 71
(c) Permitted Club Functions and Activities 72
(d) Other Tax Law Matters 73
§ 15.2 Public Use and Investment Income Limitations 73
(a) General Principles 73
(b) IRS Guidelines 73
(c) 35/15 Nonmember Income Safe- Harbor 74
(i) General Rule 74
(ii) Facts and Circumstances Test 75
(d) Use of Taxable Subsidiaries 76
§ 15.3 Exception to Limitations for Unusual Amounts 76
16 Labor, Agricultural, and Horticultural Organizations 79
§ 16.1 Labor Organizations 79
17 Political Organizations 81
§ 17.4 Public Policy Advocacy Activities 81
18 Employee Benefit Funds 83
§ 18.3 Voluntary Employees’ Beneficiary Associations 83
19 Other Categories of Tax- Exempt Organizations 85
§ 19.5 Benevolent or Mutual Organizations 85
(b) Mutual Organizations 85
§ 19.6 Cemetery Companies 85
§ 19.18 Qualified Health Insurance Issuer 86
§ 19.19 Qualified Tuition Programs 86
(a) State- Sponsored Programs 86
(c) Other Rules 87
§ 19.20 ABLE Programs 87
§ 19.22 Governmental and Quasi- Governmental Entities 87
(b) Income Exclusion Rule 87
(c) Integral Parts of States 87
(d) State Instrumentalities 88
§ 19.23 Native American Tribes 88
20 Private Inurement and Private Benefit Doctrines 89
§ 20.1 Concept of Private Inurement 89
§ 20.4 Compensation Issues 89
(b) Determining Reasonableness of Compensation 89
§ 20.5 Excess Executive Compensation Tax 90
(a) Overview 90
(c) Definition of Covered Employee 90
(g) For- Profit Executives as Volunteers 91
(i) TIGTA Examination 91
§ 20.6 Other Forms of Private Inurement 92
(i) Services Rendered 92
§ 20.8 Incidental Private Inurement 92
§ 20.12 Private Inurement and Other Categories of Exempt Organizations 92
§ 20.13 Private Benefit Doctrine 93
(a) General Rules 93
(b) Incidental Private Benefit 93
(c) Joint Venture Law 94
(d) Perspective 94
21 Intermediate Sanctions 95
§ 21.2 Tax- Exempt Organizations Involved 95
§ 21.3 Disqualified Persons 95
§ 21.4 Excess Benefit Transactions 95
(c) Automatic Excess Benefit Transactions in General 95
§ 21.10 Excise Tax Regime 96
§ 21.14 Return for Payment of Excise Taxes 96
22 Legislative Activities by Tax- Exempt Organizations 99
§ 22.3 Lobbying by Charitable Organizations 99
(c) Substantial Part Test 99
(i) Action Organizations 99
(iii) Allowable Lobbying 99
(d) Expenditure Test 99
(viii) Affiliated Organizations 99
§ 22.4 Lobbying Expenditures and Tax Sanctions 100
§ 22.5 Legislative Activities of Social Welfare Organizations 100
§ 22.6 Legislative Activities of Business Leagues 100
(a) Business Expense Deduction Disallowance Rules 100
(c) Proxy Tax Rules 100
§ 22.7 Legislative Activities of Other Exempt Organizations 100
2 3 Political Campaign Activities by Tax- Exempt Organizations 101
§ 23.1 Introduction 101
§ 23.2 Prohibition on Charitable Organizations 102
(b) Participation or Intervention 102
(ii) Political Campaign Intervention 102
§ 23.3 Political Campaign Expenditures and Tax Sanctions 102
§ 23.6 Political Activities of Social Welfare Organizations 103
(a) General Principles 103
(b) Primary Activities Test 104
(c) Tax Consequences of Political Activities 105
§ 23.10 Advocacy Communications 106
24 Unrelated Business: Basic Rules 107
§ 24.1 Introduction to Unrelated Business Rules 107
§ 24.5 Contemporary Applications of Unrelated Business Rules 108
(i) Fundraising 108
(i) Fundraising as Unrelated Business 108
(k) Provision of Services 108
§ 24.9 Commercial- Type Insurance 108
25 Unrelated Business: Modifications, Exceptions, Special Rules, and Taxation 109
§ 25.2 Exceptions 109
(h) Bingo Game Income 109
(j) Low- Cost Articles 109
(l) Associate Member Dues 109
§ 25.5 “Bucketing” Rule 110
(b) Regulations 110
26 Exemption Recognition and Notice Processes 111
§ 26.1 Recognition Application Procedure 111
(a) Introduction 112
(b) General Procedures 112
(i) Required Information 113
(ii) Other Procedural Elements 113
(c) Completed Application 114
(d) User Fees 114
(e) Penalties for Perjury 114
(f) Streamlined Application 114
(g) Withdrawal of Request 115
(h) Reliance on Determination Letters 116
§ 26.2 Requirements for Charitable Organizations 116
(a) General Rules 116
§ 26.3 Nonprivate Foundation Status 116
(a) Notice Requirement 116
§ 26.4 Requirements for Social Welfare Organizations 116
§ 26.5 Requirements for Certain Credit Counseling Organizations 117
§ 26.6 Requirements for Certain Employee Benefit Organizations 117
§ 26.8 Requirements for Certain Health Insurance Issuers 117
§ 26.10 Rules for Other Categories of Organizations 117
§ 26.11 Group Exemption Rules 117
(a) Existing Procedures 117
(c) Proposed Revised Procedures 118
§ 26.12 Terrorism- Related Suspension of Tax Exemption 118
§ 26.13 Notice Requirements for Social Welfare Organizations 118
§ 26.14 Notice Requirements for Political Organizations 119
§ 26.15 Integral Part Doctrine 119
§ 26.16 Forfeiture of Tax Exemption 119
2 7 Administrative and Litigation Procedures 121
§ 27.1 Administrative Procedures Where Recognition Denied 121
(a) Requests Receiving IRS Appeals Consideration 121
(b) Matters Not Receiving IRS Appeals Consideration 122
§ 27.2 Revocation or Modification of Tax- Exempt Status: Administrative Procedures 122
§ 27.3 Retroactive Revocation of Tax- Exempt Status 122
(a) Administrative Procedures 122
§ 27.5 Denial or Revocation of Tax- Exempt Status: Litigation Procedures 123
(c) Declaratory Judgment Rules 123
(i) General Requirements 123
(ii) Exhaustion of Administrative Remedies 123
(iv) Administrative Record 123
§ 27.6 IRS Examination Procedures and Practices 124
(b) IRS Exempt Organizations Examination Management 124
§ 27.8 Fast- Track Case Settlement Program 126
§ 27.9 IRS Disclosure to State Officials 126
2 8 Operational Requirements 127
§ 28.1 Changes in Operations or Form 127
(c) Changes in Foundation or Public Charity Status 127
(d) Form 8940 Determination Letter Requests 128
§ 28.2 Annual Reporting Rules 129
(a) Overview of Annual Information Returns 129
(v) Penalties 129
(c) Exceptions to Reporting Requirements 129
(iii) Other Organizations 129
§ 28.4 Automatic Revocation for Failure to File 129
§ 28.5 Charitable Organization Listing Reliance Rules 130
§ 28.8 Unrelated Business Income Tax Returns 130
(a) Filing and Reporting Requirements 130
§ 28.9 Document Disclosure Obligations of IRS 130
(a) Federal Tax Law Disclosure Requirements 130
(ii) Exempt Organizations Documents 130
§ 28.10 Document Disclosure Obligations of Exempt Organizations 130
(a) General Rules 130
(g) Penalties 131
(j) Donor Information Disclosure— State Fundraising Laws 131
§ 28.11 Information or Services Disclosure 135
§ 28.12 Fundraising Disclosure 135
§ 28.13 Insurance Activities 135
(b) Commercial- Type Insurance Rules 135
§ 28.14 Feeder Organizations 135
§ 28.16 Tax- Exempt Organizations and Tax Shelters 135
(a) Excise Tax on Tax- Exempt Parties to Tax Shelters 135
(b) Economic Substance Doctrine 136
(c) Donations of Interests in Passthrough Entities 137
(d) Syndicated Conservation Easements 139
(e) Charitable Contributions of Timeshares 143
(f) IRS Dirty Dozen List 145
29 Tax- Exempt Organizations and Exempt Subsidiaries 147
§ 29.1 Subsidiaries Basics 147
30 Tax- Exempt Organizations and For- Profit Subsidiaries 149
§ 30.6 Revenue from For-Profit Subsidiary 149
(b) Tax Treatment of Income from Subsidiary 149
§ 30.7 Liquidations 149
31 Tax- Exempt Organizations and Joint Ventures 151
§ 31.1 Partnerships and Joint Venture Basics 151
(b) Joint Ventures 151
§ 31.4 Ancillary Joint Ventures 151
32 Tax- Exempt Organizations: Other Operations and Restructuring 153
§ 32.7 Conversion from Nonexempt to Exempt Status 153
(b) Federal Tax Law 153
About the Online Resources 157
Appendix A - Sources of Tax-Exempt Organizations Law 159
Appendix B - Internal Revenue Code Sections 181
Appendix C - Categories of Tax-Exempt Organizations 193
Table of Cases 197
Table of IRS Revenue Rulings 243
Table of IRS Revenue Procedures 263
Table of IRS Determinations Cited in Text 265
Table of Other IRS Determinations 293
Cumulative Index 325
