Source: http://www.fed-soc.org/publications/detail/worker-centers-charities-or-labor-organizations-masquerading-as-charitiesand-the-impact-of-an-irs
Timestamp: 2015-12-01 07:28:04
Document Index: 481757248

Matched Legal Cases: ['§ 501', '§ 501', '§ 501', '§ 501', '§ 501', '§ 501', '§ 501', '§ 501', '§ 501', '§ 501', '§ 501', '§ 501', '§ 501', '§ 501', '§ 501', '§ 501', '§ 501']

Worker Centers: Charities or Labor Organizations Masquerading as Charities?—and the Impact of an IRS : Publications : The Federalist Society
Worker Centers: Charities or Labor Organizations Masquerading as Charities?—and the Impact of an IRS
Worker Centers: Charities or Labor Organizations Masquerading as Charities?—and the Impact of an IRS	Engage Volume 14, Issue 3 October 2013	By Heidi Abegg	February 28, 2014
This article is a discussion about worker centers and their status under labor law. As always, the Federalist Society takes no position on particular legal or public policy initiatives. Any expressions of opinion are those of the author. The Federalist Society seeks to further discussion about the worker centers and other labor law issues. To this end, we offer links below to different perspectives on the issue, and we invite responses from our audience. To join this debate, please email us at info@fed-soc.org.
• Benjamin Sachs, Worker Centers and the “Labor Organization” Question, onLabor (Sept. 1, 2013), http://onlabor.org/2013/09/01/worker-centers-and-the-labor-organization-question/
• Letter from Barry J. Kearney, Associate General Counsel, National Labor Relations Board, to Celeste Mattina, Regional Director Region 2, National Labor Relations Board (Nov. 30, 2006): http://mynlrb.nlrb.gov/link/document.aspx/09031d4580010c5a
• Steve Greenhouse, Advocates for Workers Raise the Ire of Business, N.Y. Times, Jan. 16, 2014: http://www.nytimes.com/2014/01/17/business/as-worker-advocacy-groups-gain-momentum-businesses-fight-back.html?_r=1
• Rebecca J. Livengood, Organizing for Structural Change: The Potential and Promise of Worker Centers, 48 Harv. C.R.-C.L. L. Rev. 325 (2013): http://harvardcrcl.org/wp-content/uploads/2013/04/Livengood_325-356.pdf
Worker centers are typically non-profit organizations funded by membership fees, grants from government and foundations, and unions. Worker centers engage in a variety of activities, including education and research, legal services, advocacy (including lobbying), training, hiring halls, collective action such as public demonstrations, and dealing with employers over wages and working conditions. While some worker centers engage in activities similar to that of § 501(c)(3) organizations, others are actively engaged in what would seem to be traditional labor union activities.
Worker centers are potentially subject to several different statutory schemes. Centers that obtain tax exempt status under the Internal Revenue Code are typically exempt under either § 501(c)(3), § 501(c)(4), or § 501(c)(5). Worker centers must also be mindful of the National Labor Relations Act (NLRA) and the Labor Management Reporting and Disclosure Act (LMRDA), which restrict certain types of activity against employers and require labor organizations to adhere to democratic practices and file financial disclosure reports. While decisions of the Internal Revenue Service (IRS), the Department of Labor (DOL), or the National Labor Relations Board (NLRB) are not binding on the other agencies, this paper will demonstrate that a finding of labor organization status by DOL or the NLRB should, in most cases, also result in a denial or revocation of tax exempt status under § 501(c)(3) by the IRS. Short of such a finding, worker centers could still lose their § 501(c)(3) status based on their actual activities.
I. The Tax Exempt Status of Worker Centers
Worker centers desire exempt status under § 501(c)(3) for several reasons. First, contributions are tax deductible, thus making it possible to receive contributions from other § 501(c)(3) organizations and private foundations, from employers,1 and from those motivated to give for the purpose of taking a deduction. Second, a worker center exempt under § 501(c)(3) is not required to file an annual financial statement with the Department of Labor.2 Third, maintaining § 501(c)(3) status helps keep them exempt under the NLRA and LMRDA.3 Fourth, at least one worker center organizer believes such status is required in order to permit it to invest in a worker-owned restaurant.4
To qualify for exempt status under Internal Revenue Code § 501(c)(3), an organization must be organized and operated exclusively for religious, charitable, scientific, literary or educational purposes.5 The term “charitable” includes, but is not limited to, relief of the poor and distressed or of the underprivileged, advancement of education, elimination of prejudice and discrimination, and the defense of human and civil rights secured by law.6 The fact that an organization, in carrying out its primary purpose, advocates social or civic changes or presents opinion on controversial issues with the intention of molding public opinion or creating public sentiment to an acceptance of its views does not preclude such organization from qualifying under § 501(c)(3) so long as it is not an action organization.7
The term “educational” means the instruction or training of the individual for the purpose of improving or developing his capabilities, or the instruction of the public on subjects useful to the individual and beneficial to the community.8 In determining when the advocacy of a particular viewpoint or position is educational for § 501(c)(3) purposes, the IRS focuses on the method the organization uses to communicate to others, not the content of its communication.9 The method of communication is not educational “if it fails to provide a development from the relevant facts that would materially aid a listener or reader in a learning process.”10
An organization is not organized or operated exclusively for one or more of the recognized purposes unless it also serves a public rather than a private interest.11 One court has defined private benefit as “nonincidental benefits conferred on disinterested persons that serve private interests.”12 An organization must establish that it is not organized or operated for the benefit of private interests such as designated individuals, the creator or his family, shareholders of the organization, or persons controlled, directly or indirectly, by such private interests.13 A private benefit can involve benefits to anyone other than the intended recipients of the benefits conferred by the organization’s exempt activities.14 Intended recipients would be the poor, sick, elderly, students, the general public, or other group constituting a charitable class.15 Intended recipients would not include insiders, such as officers or directors, or even unrelated third-parties, such as members or employees.16 A benefit that is a necessary part of the exempt purpose of the organization does not serve a private interest.17 However, anything flowing from an organization’s activities that are not public, charitable benefits may serve private interests.18 In other words, any private benefit arising from a particular activity must be a side effect of activities that advance an exempt purpose, and the private benefit must be reasonable in proportion to the public benefit.19 Further, if a private benefit is conferred directly and intentionally, it violates the private benefit doctrine, even if the benefit to the private party is relatively insignificant.20
Traditional labor organization activities generally do not qualify as charitable because they are intended to benefit the employees in the union or bargaining unit as opposed to the general public. For example, representing workers in collective bargaining, handling worker grievances, and operating hiring halls, benefit only certain workers and not the public at large. Similarly, an organization is serving private interests rather than the public if its charitable activities are open only to a particular group of workers, such as employees of a particular employer. Operating for the benefit of private parties constitutes a substantial nonexempt purpose.21 Some of the private benefits conferred by worker centers appear to be direct and intentional, as will be shown below, and not a side effect of charitable activities, and therefore violate the private benefit doctrine without regard to the substantiality of the benefit. Other worker center benefits appear to be disproportionate to its public benefit, and therefore violate the private benefit doctrine despite a public, charitable exempt purpose.22
II. A Finding That A Worker Center Meets the
Definition of a Labor Organization Under the NLRA or LMRDA and its Corresponding Impact on its Tax Exempt Status under § 501(c)(3)
As of the date of this Paper, neither DOL or the NLRB23 has found any worker center to be a labor organization under the LMRDA or NLRA.24 Were it to do so, what effect would that have on a worker center’s § 501(c)(3) classification?
Section 2(5) of the NLRA defines a labor organization as an organization in which employees participate and that exists for the purpose, at least in part, of “dealing with employers” over grievances, labor disputes, or terms and conditions of employment.25 The NLRB and the courts have taken an expansive view of what constitutes a labor organization.26 The “dealing with” requirement has been defined broadly, and an organization may satisfy this requirement without formally negotiating for a collective-bargaining agreement.27
If a worker center meets both parts of the NLRA’s definition of labor organization, there is a strong likelihood the worker center cannot qualify for exemption under § 501(c)(3). The first part of the definition of a labor organization requires employee participation. A finding of employee participation is evidence that the worker center does not serve the public, but rather, a small group of employees. A worker center that meets this part of the definition of labor organization will have difficulty demonstrating it serves the public’s interest, as required under § 501(c)(3) of the Internal Revenue Code, because benefits accrue to its members, rather than to the general public.
One worker center