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Payroll Today

Barking up the wrong charitable tree

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Alice Gilman

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in Payroll Today

We know that you’re reaching the end of your rope with formatting your 2015 W-2 files for the Social Security Administration. So we thought a little tax humor might fit the bill this week.

It’s tough enough to tell a charity that uses donations effectively from one that keeps most of the money it raises for itself. But what’s clear is that you can’t take a failing for-profit business and turn it into a tax-exempt charity. That would be too easy. This is what the IRS had to say to two organizations that tried.

According to the facts presented in one organization’s application for tax-exempt status, the founder, executive director and sole employee was a Certified Body Talk Practitioner, Animal Talk Practitioner, Fuji-San Practitioner, Complete Mind and Body Instructor and Hypnotherapist. She was also a Breakthrough Facilitator for Body Talk and a Reiki Master.

In turning down the organization’s application, the IRS concluded that it failed every test for tax-exempt status, but these points particularly piqued the IRS examiner’s interest:

  • The organization was first operated at a loss as a for-profit business
  • The organization’s mission was to provide healing services for individuals and their pets for a suggested donation, which was the amount the sole proprietorship charged
  • Only individuals who made the suggested donation received services, which consisted of individual tailored sessions catered toward each client's individual needs.

It is a dog’s life, isn’t it?

Another application for tax-exempt status indicated that it was formed to advocate for the spaying and neutering of pets. It would also offer free or reduced boarding and veterinary care for stray and rescued animals and financial support for other like-minded organizations.

Again, the IRS saw two problems. First, the tax-exempt organization was the successor to a failed for-profit business. Second, were the services it offered.

  • Background music, television, central heat and air conditioning, video surveillance, a proper staff-to-guest ratio and penthouse suites—large suites with plenty of sunlight, heated floors and a TV and DVD player
  • Fitness and spa treatments, which included a heated spa, treadmill and other fitness equipment for aerobic conditioning, as well as strength and balance/coordination training
  • Pet massage therapy.

This organization didn’t get its tax-exempt status either, because according to the IRS, the public awareness campaign for spaying and neutering animals was insubstantial when compared to its overall activities. Worse was that it made no significant changes from how the for-profit business operated.

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