Federal Tax Law Research. Xiaomeng Zhang University of Michigan Law Library Urban Community Clinic Seminar 956 February 15 th , 2010. What is Covered. What are the major primary laws Statutes and Regulations Case law IRS rulings and documents How to find the laws
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University of Michigan Law Library
Urban Community Clinic Seminar 956
February 15th, 2010
United States Supreme Court
Geographic Circuit Courts of Appeals
(1st through 11th and D.C. Circuits)
Court of Appeals for the Federal Circuit
United States Tax Court
Court of Federal Claims
Regular opinions (most authoritative)
Summary opinions (no precedential value)
Adapted from Federal Tax Research, figure 5.1
Client is “CDC” – a community development organization in a low-income, urban community. CDC is incorporated as a non-profit corporation. The stated purpose of CDC according to the filed Articles of Incorporation is to (a) aid and benefit the unemployed, underemployed and/or minority residents of an economically depressed area by establishing businesses owned by and employing the residents of the community and providing them with business planning, funding, marketing, and mentoring, etc.; (b) improve and develop skills and employment opportunities of the members of the community; and (c) make distributions to organizations that qualify as exempt organizations under section 501(c)(3) of the Code.
CDC was created by three directors from “XYZ”, a nonprofit 501(c)(3) organization based in the same urban community. XYZ is an evangelical youth group with the purpose of sharing religious beliefs and encouraging social involvement. XYZ has been having fundraising problems and the three XYZ directors decided to create a separate nonprofit corporation (CDC) that would be held at arms length. In addition to the purpose stated above, XYZ’s other purpose for CDC is to funnel donations back to XYZ. The small businesses being set up by CDC would, when they began to earn a profit, donate 10% back to CDC. CDC would then distribute those profits to other 501(c)(3)s in the community, including (but not limited to) XYZ.
Questions: What are the tax and nontax implications of (1) requiring donations from the businesses they created, and (2) taking the donations and redistributing them to other nonprofits in the community, and specifically, XYZ?