1

Social Enterprise AllianceMember Teleconference

2

RECENT IRS DEVELOPMENTS AFFECTING

SOCIAL ENTERPRISE

Perlman & Perlman, LLP

By: Allen BrombergerPerlman & Perlman, LLP

41 Madison Avenue, Suite 4000New York, NY 10010

(212) 889-0575

3

Historical background

Perlman & Perlman, LLP

Puritan roots of charity Commerciality Doctrine Important Cases allow nonprofits to engage in

commerce.

Revenue Rulings 98-15 and 2004-51 IRS looking closely at social ventures and

relationships between 501(c)(3) and for-profit businesses, trying to figure out what the new standard should be.

4

Treasury Decision 9390 (March 2008)

Perlman & Perlman, LLP

Focus is now on private benefit. “Benefit” does not have to be economic. Benefit may be improper even if the terms

are fair and reasonable to the nonprofit. Examples are frightening. Incidental benefit is OK

i. Qualitatively incidental ii. Quantitatively incidental

5

Revised Form 990

Perlman & Perlman, LLP

Requires expanded disclosures relatingto commercial activities, governance,relationships with for-profit entities andmany other topics.

Asks specifically about certain policies IRS wants charities to adopt.

6

Revised Form 990

Perlman & Perlman, LLP

Expanded Disclosures: Joint ventures (details) Compensation and benefits

(includes “key employees”) Revenue and expense from FR events Board review of 990 Conflicts, whistle-blowers Public disclosure of information

7

Revised Form 990

Perlman & Perlman, LLP

Policies:

Conflicts of Interest Board Review of 990 Whistle-blower Protection Document Retention and Destruction Joint Venture Participation

8

Conclusion

Perlman & Perlman, LLP

IRS is looking very closely at nonprofits’“business” practices.

Commercial enterprises must further the nonprofit’s purpose.

The nonprofit must have effective control over certain aspects of the enterprise.

No impermissible private benefit (intermediate sanctions).

UBIT

9

Thank YouSocial Enterprise Alliance

1720 N St. NW Washington, DC 20036

202-375-774www.se-alliance.org