A Response to Professor Leff’s Tax Planning 'Olive Branch' for Marijuana Dealers

13 Pages Posted: 13 Oct 2013 Last revised: 25 Mar 2014

See all articles by Philip Hackney

Philip Hackney

University of Pittsburgh - School of Law

Date Written: October 6, 2013

Abstract

Professor Benjamin Leff argues in a forthcoming article entitled Tax Planning for Marijuana Dealers that a tax-exempt social welfare organization described in Internal Revenue Code section 501(c)(4) may sell medical marijuana without putting its exempt status in jeopardy. He argues that (1) the “public policy” doctrine applicable to charitable organizations under section 501(c)(3) does not apply to social welfare organizations, and (2) a social welfare organization may consider “community” law and ignore federal law in considering whether its activity meets the idea of social welfare. I argue that Leff is wrong and that the public policy doctrine applicable to charitable organizations applies to social welfare organizations equally. Tax-exempt organizations derive exempt status primarily by supplying significant public benefits. Violating federal, state or local law causes public harm; thus, any tax-exempt organization, including a social welfare organization, may not violate established public policy as a substantial purpose. Additionally, the “community” requirement for social welfare organizations is to ensure the organization is dedicated to a public purpose rather than a private one. Violating any law, including federal, is more likely to ensure an organization is operating for a private rather than public purpose. Contrary to Leff’s claim therefore, this article argues that a social welfare organization may not sell medical marijuana and maintain its exempt status.

Keywords: section 501(c)(3), section 501(c)(4), social welfare, social welfare organization, charitable organization, marijuana, public policy doctrine, illegality doctrine, Bob Jones University v. Commissioner, charitable trust, tax exempt organization

JEL Classification: K34, L3, L31

Suggested Citation

Hackney, Philip, A Response to Professor Leff’s Tax Planning 'Olive Branch' for Marijuana Dealers (October 6, 2013). Iowa Law Review Bulletin, Vol. 99, 2014. Available at SSRN: https://ssrn.com/abstract=2339333

Philip Hackney (Contact Author)

University of Pittsburgh - School of Law ( email )

3900 Forbes Ave.
Pittsburgh, PA 15260
United States
412.643.0434 (Phone)
412.648.2649 (Fax)

HOME PAGE: http://www.law.pitt.edu/people/philip-hackney

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