UPDATE, 30 March 2018:
On Twitter, Phil Hackney (@EOTaxProf ) has this and more:
“To be clear this is only a procedural document. It says the IRS will not issue a ruling on orgs claiming exempt status in as an org advancing a line of business if that business involves marijuana. Not the same as saying such orgs do not qualify; no need for such orgs to apply.” https://twitter.com/EOTaxProf/status/979475478452035584
I agree that the IRS “no letter” rule for marijuana non-profits is of minor direct legal consequence. But people in cannabis community might understandably see this as
(1) deliberately singling them out;
(2) evidence of Administration antipathy – evidence of more to come.
A recent IRS ruling, sent to me by Professor Francine Lipman of UNLV Law School, is making waves: The IRS says it “will not issue a determination letter [about non-profit status] when the request concerns an organization whose purpose is directed to the improvement of business conditions of one or more lines of business relating to an activity involving controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law regardless of its legality under the law of the state in which such activity is conducted.”
“Improvement of business conditions” I don’t quite get. I’m confused. This is not my field. Off the top of my head:
I’m thinking of a distinction between trying to help people break a law and trying to change a law.
Is lobbying for the ability of cannabis businesses to be able to use banks a forbidden purpose? That would be pretty harsh. It’s generally OK to seek changes in the law under 501(c)(6), I would think. Prof. Phil Hackney of LSU Law School pointed out to me that this looks like a case under (c)(6), which exempts: “(6) Business leagues, chambers of commerce, real-estate boards, boards of trade, or professional football leagues (whether or not administering a pension fund for football players), not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.”
Holding conferences where marijuana growers learn about new cloning techniques seems like facilitating law breaking. So maybe that’s a killer purpose. But If the language were “improvement of business” rather than “improvement of business conditions” I might think learning about cloning was more clearly a bad purpose, and lobbying for banking was more clearly OK. But “conditions” are in the (c)(6) regs: “Thus, its activities should be directed to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons.”
But what if a bad purpose is mixed with other purposes, legitimate ones, of the organization? What if there’s a conference on cloning, and half the topics are about cloning cannabis, and half about cloning tomatoes?
The (c)(6) regs say this:
“A business league is an association of persons having some common business interest, the purpose of which is to promote such common interest and not to engage in a regular business of a kind ordinarily carried on for profit.” https://www.law.cornell.edu/cfr/text/26/1.501%28c%29%286%29-1
Won’t that taint an organization if it both promotes a common business interest and seeks a profit? If so, will any amount of bad purpose (cannabis cloning) taint the whole cloning organization? That seems too harsh, maybe. I’ve never looked at this kind of issue before, so I look to Phil Hackney and other law professor friends.