Set up policies to prevent private inurement
and provide continued training to the directors and officers regarding private inurement
as well as an understanding of Sec.
Jones, The Scintilla of Individual Profit: In Search of Private Inurement
and Excess Benefit, 19 Va.
If the operations were split between two entities, and she were to manage both, the charity would be scrutinized by the Internal Revenue Service (IRS) for possible violations of the doctrines of private inurement
and private benefit and for impermissible contributions to the for-profit company.
* Tax-exempt entities that have shale gas deposits on their land face special tax issues, including unrelated business income taxes and the prohibition against inurement
Section 3(a)(4) defines such a security as "[a]ny security issued by a person organized and operated exclusively for religious, educational, benevolent, fraternal, charitable, or reformatory purposes and not for pecuniary profit, and no part of the net earnings of which inures to the benefit of any person, private stockholder, or individual." (128) Though not explicitly stated in the statute, the second part of the exemption regarding the inurement
of benefits refers to persons, stakeholders, or individuals who have a stake in the organization or are somehow connected with the organization, not to the purchasers of securities.
In one court case, a private inurement
was sufficient to cost a church its tax-exempt status over the widely fluctuating parsonage allowances paid to a pastor (Unitary Mission Church of Long Island v.
[Does not] result in private inurement
or confer impermissible private benefit.
The IRS argued that because the UCC paid Watson & Hughey so much money, the company should be classified as an insider of the charity and therefore UCC violated rules against private inurement
. The appellate court determined that the fundraising company was not an insider of the charity and that no one at the charity received inurement
In other words, even if a state allows a charity to issue stock, it maintains the rules against private inurement
and private benefit.
Fortenberry PLLC, The Inurement
Prohibition & Non-Profit
the private benefit and private inurement
This nondistribution constraint and the broader other-regarding orientation requirement are strongly expressed by a plethora of legal rules: state organizational law barring self-dealing by fiduciaries and limiting distributions more generally; the restrictions on inurement
, private benefit, and excess benefit transactions under federal tax exemption law; and the various tax, corporation, and trust law doctrines addressing charitable purpose and charitable class.