Taxation Newsletters

Business Leagues and Trade Organizations

In order to qualify for tax-exempt status under Internal Revenue Code Section 501(c)(6), an association must show that it is devoted to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons. The organization seeking tax-exempt status as a nonprofit business league, chamber of commerce, real estate board, or professional football league must do more than indicate the name of the organization or the object of the local statute under which it is created.

Education Credit

Congress has created two federal income tax credits for qualifying higher education expenses: the Hope credit and the lifetime learning credit. Both credits reduce regular income tax liability, but if the amount of the credit exceeds the tax liability for the year, the taxpayer is not entitled to a refund.

General Litigation

Under certain circumstances, a taxpayer is entitled to recover the reasonable litigation or administrative costs that he or she paid to defend his or her position to the Internal Revenue Service or to the courts.

Tax-Exempt Status of Labor, Agricultural, and Horticultural Organizations

Labor, agricultural, and horticultural organizations meeting certain requirements may be eligible for tax-exempt status under Internal Revenue Code Section 501(c)(5). However, even if a group of this type is entitled to exempt status, contributions made to it are not deductible as charitable donations on the donor's federal income tax return unless the payments are ordinary and necessary expenses in the conduct of the donor's trade or business.

Tax-Free Contributions in Exchange for Corporate Stock

When a corporation is formed, its shareholders transfer money and property to the corporate entity in return for stock. Generally, if you transfer money or property into a corporation solely in exchange for stock of that corporation and you control the corporation immediately after the transaction, neither you nor the corporation recognizes any gain or loss resulting from the exchange. This general rule is not elective. If the statutory requirements of a tax-free exchange are met, neither gain nor loss will be recognized. The rule applies if you are an individual or if you are a member of a group that transfers property into a corporation. In addition, the exchange is tax-free no matter whether the corporation is being formed or whether it is already operating.