What's in a Name: IRS' Attempts to Tax Nonprofits on the Exploitation of the Organization's or its Members' Names

Abstract

For nearly twenty years IRS has been attempting to limit a nonprofit organizations' ability to financially exploit its name property by imposing an income tax on any income generated by the exploitation. Two primary methods nonprofits attempt to exploit their name are: (1) selling mailing lists containing the organization members' names to third parties (mailing lists) and (2) authorizing, for a fee, the issuance of credit cards to members and nonmembers that carry the organization's name and logo (affinity cards). Both the United States Tax Court and several federal courts have reviewed IRS' regulation of each of these name exploitation methods. However, the Supreme Court has yet to definitively address the limits of the IRS' ability to tax this exploitation income. Thus, the limits of IRS' ability to tax a nonprofit's sale of its membership lists or affinity card arrangements are unclear. While several recent federal cases help to clarify and define the issue, there remain cases around the country, which may be appealed. This Article is an attempt to outline the nonprofit tax issues relative to name exploitation and make some predictions as to how the U.S. Supreme Court might, and should, rule relative to these issues.

Keywords: nonprofit & philanthropy law