Obtaining tax exempt status from the Internal Revenue Service (IRS) and managing that status places a significant burden on nonprofit organizations. That burden is increased if there are subunits of the organization that obtain tax exempt status via the mechanism of a group exemption from the parent organization. It appears that the WBCCI has encountered difficulties in properly managing these burdens. Here is an email response to a question about the assertion of an IRS requirement that was in the WBCCI Bylaws.
12/21/2012, From DS (CBL chair)
This IRS requirement was verified through WBCCI Headquarters who is subject to IRS review which has happened. It is specifically an IRS requirement that the Units resubmit their rules (Constitution and Bylaws) every five (5) years and IRS has maintained that they have the right to check our files to insure that this is accomplished. You must also be aware that the "non-profit" status of WBCCI as a corporation from the State of Ohio is always subject to review both by the State and Federal government.
Therefore, I must take exception to your comment "Since the conditional predicate appears to be false, the remainder of the section is of suspect validity". Also,please understand that IRS has made a point of placing our organization in the past "under the looking glass" and that the Club does not once again be faced with heavy IRS fines.
The facts appear to be that the IRS has engaged in some sort of agreement with the WBCCI. Rather than cite and explain that agreement, the CBL took exception to a logical inference based on what was available at the time of the query. This opens the question about the ‘attitude’ of WBCCI Trustees towards members compared to its behavior standards and goals (see the page on behavior). It also begs the question as to the special nature of the agreement between the IRS and the WBCCI and how it is being addressed by the WBCCI.
There is evidence of the WBCCI concerns scattered throughout its Bylaws and Policies. There is Bylaws VI which identifies the basic components of any good governance document. Bylaws VII describes the need for a minimum size and the necessity of filling the defined officer roles. The Policies contain suggested unit bylaws and constitution to comply with IRS instructions in their Publication 557.
The express interest of the IRS is that the WBCCI and its subunits properly demonstrate the “purposes and activities” for which the tax exempt status was granted. That is why any changes in governance documents related to these areas must be reported and explained in the organization’s annual filing, why there is are suggested governance documents for subordinate organizations included in the group exemption, and why the parent organization should supervise and manage its compliance. What the stimulus for this case study illustrates, however, is that the intent is being subverted for process and neither the intent nor the process is understood. That is a recipe for yet another unpleasant IRS encounter in the future.
As an example, recent complaints and suggestions regarding the SNU Bylaws from WBCCI CBL members asks that membership requirements be duplicated in the subunit documents from the WBCCI documents in order that prospective members can see what is needed to become a member all in one place. This is discussed in the SNU Bylaws Issues page. Note that the WBCCI CBL did not address the issues presented by the SNU nor did they explain a context based on their primary charge: that of maintaining the tax exempt status of the WBCCI and its subordinate units and how their questions and suggestions addressed IRS needs, regulations, and requirements.
The SNU did address the tax exempt requirements from the point of view of competent association management in line with commonly accepted good practice. Its Bylaws did not make promises that its membership could not fulfill as in WBCCI Bylaws VII. It specifically incorporated the parent organization’s purposes and activities as guides for its own. It avoided excess specification and duplication in order to reduce confusion and ambiguity and divergences that might occur over time. These were not pro-forma procedural matters followed with blind obedience but rather principle driven good governance meeting requirements and needs directly.
An examination of the unit officer listings in the WBCCI directory indicate that many of its subunits are in the ‘may do something’ category (Bylaws VII) where dissolution is the most common advice. There are single voting members serving in multiple offices and some in offices in more than one unit. Both of these phenomena raise membership definition and privilege issues quite relevant to tax exempt status but it is the SNU and not this phenomena that is under threat. That expression of priority in purposes and activities is something that also impacts tax exempt considerations.
Another factor is that the suggested bylaws require at least eight members of the executive committee and list eleven standing committees that require at least a chair. How is a unit with only ten members supposed to fill these required unit positions properly? Since the committees define the activities of the unit, what does the inability of a unit to properly man these committees say about its adherence to the ‘purposes and activities’ of the WBCCI? (cf association identity)
It does appear that the WBCCI has reason to be concerned about its tax exempt status and that its behavior towards gaining an understanding of its issues, proper consideration of professional advice, and response to concrete suggestion are not helping its efforts and perhaps even contributing to its problems by illustrating a hollowness in adhering to its own standard of behavior as expressed in its Code of Ethics (cf behavior).
Note: The Leipper Management Group is no longer active due to the passing of time, the increasing regulatory and legal burdens, and the manner by which cultural and technological changes influenced the nonprofit associations. This is a special edition of the monthly bulletin produced when the Group was active. It was prepared by the principals of Leipper Management now retired. Comments and suggestions related to this bulletin should be addressed to hq (at) leipper.org
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