IRS Ruling on Cert Programs May Affect Exempt Tax Status of Some Providers
10/20/2004 -- [Important Editor's Note: Even though I don't fully understand the subject matter, I'm writing this up the best I can for any certification program managers out there that it might be relevant for. Be sure to read the source article for more information.]
A new Internal Revenue Service (IRS) ruling on the status of certification programs may mean taxes for organizations offering credentials that were otherwise exempt from federal income tax.
According to an article published today on Mondaq.com by Powell & Goldstein LLP, an Atlanta-based law firm, the IRS recently determined that certification programs constitute "unrelated trade or business" for Section 501(c)(3) organizations.
The ruling came from a case where a particular certification program "was found to be directed primarily at serving the interests of a profession and the professional and business interests of persons employed in that industry, and only incidentally served the interests of the public. The program was therefore found not to accomplish one or more of the exempt purposes of the organization under section 501(c)(3) and was subject to taxation as an unrelated trade or business," the article states.
The program that was the subject of the ruling was not named, nor was the industry it applied to. The article did say that the program consisted of "exam-based testing to demonstrate mastery of a specific body of knowledge and maintain high standards of excellence in the particular profession."
Nancy O. Kuhn and Susan A. Cobb, authors of the article, write that the size of the certification program in relation to the overall organization's intent could effect an organization's overall tax status: "While a certification program may not accomplish one or more exempt purposes of an organization under section 501(c)(3) of the Code, it will not jeopardize the organization’s status as a 501(c)(3) organization if it constitutes an insubstantial part of the total activities conducted."
For more information, be sure to see the article, posted here.  -Becky Nagel
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