Tax Court affirms denial of exemption to a social enteprise

Jack Siegel breaks down the latest warning shot to charitable social entrepreneurs: Solution Plus v. Commissioner, Tax Court Memorandum 2008-12. I'll skip the procedural folderol and get right to the point: in this case, the court upholds the IRS' decision to deny 501(c)(3) status to an educational credit counseling service. Here are a few highlights:

Petitioner's articles of incorporation do not limit its activities to those related to education because the articles empower petitioner to engage in activities that are not purely charitable or educational. For example, petitioner could operate an investment business and offer products and services with respect to a customer's individual needs. Those activities stand in stark contrast to educational purposes acceptable under section 501(c)(3) . . . .

The term "charitable" is used in section 501(c)(3) in its generally accepted sense and includes relief of the poor and distressed or of the underprivileged. However, primarily providing services for a fee ordinarily does not further charitable purposes.

Yes, I know that there are any number of social enterprises that have avoided the fate of Solution Plus--which I guess after this will dissolve (ba dum bump!)--but cases such as this are a vivid reminder that exemption is not guaranteed. The world of social enterprise is not the world of the tax code; if you want to survive you must adapt.