CannabisNonprofitTax Planning

Update on nondisclosure of charities’ donor rule

Revenue Procedure 2018-38 remains controversial. Lawmakers (mostly Democrats) are concerned that it could encourage the flow of dark money into the tax-exempt sector. Their concern is valid. I know of private foundations that have already reorganized as public charities to take advantage of the secrecy rule change for their own benefit. No doubt, this rule change is the opposite of the “drain the swamp” political motto. Also, there is no doubt that’s the rule change was made without the usual public comment process. New York and New Jersey have sued the IRS over the change and demand reversal. Still, some rich people believe that they should be able to spend money as they wish, in private, without obligation of disclosure to anyone. The rest of us ted to associate that type of spending with some type of criminal influence and corruption.

I am focused on an entirely different aspect of the new IRS policy: how 501(c )(3) charities can be used for business planning. Charities have long been a tax planning tool for the wealthy. This revenue procedure makes the tool more valuable, especially for donors who want to hide these relationships from the public. Some businesses and individuals are already making plans to take advantage of the new law.

This new rule can be an especially effective tax and civil liability risk management tool for the legalized marijuana industry, (among others).

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