The Law of Tax-Exempt Organizations, 2021 Cumulative Supplement. Bruce R. Hopkins

EIGHT Educational Organizations

        § 8.1 Federal Tax Law Definition of Educational

        § 8.3 Educational Institutions (a) Schools, Colleges, and Universities

        § 8.4 Instruction of Individuals

        § 8.5 Instruction of Public

§ 8.1 FEDERAL TAX LAW DEFINITION OF EDUCATIONAL

       p. 208. Insert as second complete paragraph:

An organization offering software that is free to download and edit was denied recognition of tax exemption as an educational organization, with the IRS writing that it is “merely provid[ing] open source web applications that can be used or modified by anyone and used for whatever purpose that individual sees fit.”^10.1

§ 8.3 EDUCATIONAL INSTITUTIONS

      (a) Schools, Colleges, and Universities

       p. 212, first complete paragraph, first line. Delete This and insert According to the tax regulations, this.

       p. 212, second complete paragraph, fourth line. Delete tax‐exempt; insert as an educational entity following status.

       p. 212. Insert as third complete paragraph:

A court upended the foregoing requirements for qualification as an educational institution (and most of the other categories of public institutions), holding that the primary‐function test and the merely‐incidental test, as a matter of statutory construction, “exceed the bounds of authority” provided by the statute and thus are unlawful.^45.1 The court based this finding on its conclusion that Congress “unambiguously chose not to include a primary‐function requirement in” the statutory definition of educational organization.^45.2 That conclusion was, in turn, based on the fact that the “equivalent of that very requirement”^45.3 appears in the tax law concerning public charity hospitals.^45.4 The heart of this part of the analysis is the statutory construction rule that, in determining whether statutory language is plain and unambiguous, a court must read all parts of the statute together and give full effect to each part.^45.5 The court might have come to a different decision if it had applied another construction rule, which is that the judicial interpreter is to consider the entire text, in view of its structure and of the physical and logical relation of its many parts.^45.6 The problem is that this decision interprets the law of public charities in a way that enables an entity to qualify as a public charity by simply tangentially qualifying.^45.7

§ 8.4 INSTRUCTION OF INDIVIDUALS

       p. 217, note 103. Insert following existing text:

      If this type of activity, however, is or becomes more in the nature of business promotion, however, the private benefit doctrine (see § 20.13) will preclude exemption (e.g., Priv. Ltr. Rul. 201927022).

§ 8.5 INSTRUCTION OF PUBLIC

       p. 222, first complete paragraph. Insert as last sentence:

Somewhat similarly, an organization will not be considered by the IRS to be educational if more than an insubstantial amount of the entity's activities is social in nature.^161.1

Notes

      1 ^10.1 Priv. Ltr. Rul. 202019028.

      2 ^45.1 Mayo Clinic v. United States, 412 F. Supp. 3d 1038, 1057 (D. Minn. 2019).

      3 ^45.2 Id. at 1047.

      4 ^45.3 Id.

      5 ^45.4 See § 7.6(a).

      6 ^45.5 This is one of the contextual canons used in construing statutes; it is a presumption of consistent usage. See Scalia & Garner, Reading Law: The Interpretation of Legal Texts 170 (Thomson/West, St. Paul, MN: 2012).

      7 ^45.6 This is the whole‐text canon (Reading Law, supra, note 45.5, at 1167). In this case, the court did not read “all parts of the statute together”; it read only two sections of it (IRC § 170(b)(1)(A)(ii) and (iii)). The entire statute is IRC § 170(b)(1)(A), where the law provides for nine categories of public charities, eight of which do not contain the primary‐function requirement. It is probable that the statute writers had a reason to insert the requirement only in IRC § 170(b)(1)(A)(iii), a point the court did not explore.

      8 ^45.7 The IRS calculated that the Mayo Clinic's educational activities were only 13 percent of its total activities and that its revenue from educational undertakings was only 6 percent of total revenue (Tech. Adv. Mem. 201407024). The court in this case may have violated another contextual canon: the absurdity doctrine. This canon states that a provision may be judicially corrected where the failure to do so would result in a disposition that no reasonable person could approve (Reading Law, supra, note 45.5, at 234). Indeed, another contextual canon the court could have applied is the harmonious‐reading canon, pursuant to which the provisions of a text should be interpreted in a way that renders them compatible, not contradictory (id., at 180).

      9 ^161.1 E.g., Priv. Ltr. Rul. 201852020.

CHAPTER NINE Scientific Organizations

        § 9.2 Concept of Research

§ 9.2 CONCEPT OF RESEARCH

       p. 231, second paragraph. Insert as last sentence:

Also, the promotion of blockchain technology for the benefit of payors, providers, and financial institutions in the health care context was ruled by the IRS to not be scientific research.^18.1