Tax Planning for the Occupy Wall Street Movement

David van den Berg (Tax Analysts), Occupy Groups Would Face Burdens, Get Benefits From Tax Exempt Status, Practitioners Say, 2011 TNT 250-2 (Dec. 29, 2011):

Some of the Occupy groups that have sprouted nationwide have taken steps toward becoming nonprofit organizations -- something that would impose several requirements on the groups but would also provide some benefits, practitioners told Tax Analysts.

Through large protests and public encampments, the Occupy groups have attempted to raise awareness about what they consider corporate greed and income inequality. So far, some Occupy organizations, including those in Portland, Ore., and Atlanta, have registered as nonprofits with their appropriate state agencies. On its website, the Occupy organization in Wilmington, N.C., said it has "voted to file" for section 501(c)(3) status.

The main advantage of tax exemption for the Occupy groups would be the ability to directly receive tax-deductible contributions, said Lloyd Mayer, a professor at the University of Notre Dame. But he isn't sure that matters to the Occupy groups. "Given the grass-roots nature of the movement, I am not sure how much their supporters need that incentive in order to be enticed into giving," Mayer said. "It appears inconsistent with the general character of these groups for them to seek such status and the organizational and operational restrictions that come with it." ...

Ofer Lion, of Mitchell Silberberg & Knupp LLP, said it makes sense for the groups to form as 501(c)(3) organizations, and that the Occupy groups could be "good" 501(c)(3)s engaged in issue advocacy. But a reluctance to appoint leaders may be one reason why more Occupy groups haven't sought exempt status, he said.

"Assuming that Occupy Denver or any of the other Occupy movements forms and is housed in a corporate nonprofit. Then there are often requirements as to how many directors there are, what officers are required, and I'm pretty sure that the president or CEO cannot be a dog," Lion said. "It may be that the corporate form -- that is the traditional method for nonprofits -- is not really in line with their structure, and so the two don't mesh." ...

Occupy Wall Street, the most well-known of the Occupy movements, is taking a different approach. The Alliance for Global Justice, a 501(c)(3) organization based in Washington, is serving as the fiscal sponsor for Occupy Wall Street.

According to the Alliance's website, its duty as sponsor is to collect and process all of Occupy Wall Street's donations and pass on the money to Occupy Wall Street. The Alliance must include Occupy Wall Street's financial reporting with its own when filing a Form 990, "Return of Organization Exempt from Income Tax," and the Alliance is accountable legally and financially to prove all of Occupy Wall Street's financial expenditures are in accordance with IRS rules for exempt organizations, according to a statement on the Alliance's website. ...

This model is a good one for Occupy Wall Street, Lion said. In many cases, there's no need for a nonprofit to form as its own corporation and file an exemption application. What it really needs to do is get its program going and succeed at it, he said. "Then, to the extent they want to go out on their own and leave the umbrella of their fiscal sponsor, that makes a lot more sense than wasting a lot of time and resources on formation when they're not really ready for it."

All Tax Analysts content is available through the LexisNexis® services.  Prior TaxProf Blog coverage:

• Deductibility of Donations to Occupy Wall Street (Oct. 31, 2011)
• Accountants: Occupy Wall Street Needs Your Help (Dec. 22, 2011)