This Article will examine the origin and impact of section 501(c)(3)recognition as a prerequisite to arts grants. Arts organizations which have the most difficulty obtaining recognition under section 501(c)(3) include small presses and literary magazines, organizations which assist visual artists with marketing, and certain arts service organizations. Their special problems in obtaining recognition will be examined. This Article suggests the appropriate test for recognition of exemption under section 501(c)(3) for organizations whose sole activity is a business which furthers their exempt purposes. This includes most small presses and literary magazines. The appropriate test is whether an exempt purpose, or profit, is the primary motive for the organization. The test used by the Internal Revenue Service, whether the business is similar to commercial enterprises, often fails to measure profit motive, particularly when applied prior to the commencement of the business, and may improperly prevent recognition of exemption. This Article will also suggest that exempt organizations may confer private benefit if private benefit is a vehicle for achieving a greater public benefit. Thus, art galleries which assist gifted artists to achieve self-sustaining economic levels, assist with services those they could assist with direct money grants. They serve the public by encouraging the arts and may be recognized under section 501(c)(3) for the public benefit they confer. Finally, this Article recommends that state arts agencies and private funding sources develop programs permitting direct funding to organizations not exempt under section 501(c) (3), and suggests that they use fiscal agents, fellowship programs, and contracts for services to meet their legislative and charitable goals.
Michael E. Skindrud,
Recognition under Section 501(C)(3) of the Internal Revenue Code as a Prerequisite to Arts Grants: A Special Problem for Literary Publishers and Art Galleries,
26 Clev. St. L. Rev.
available at http://engagedscholarship.csuohio.edu/clevstlrev/vol26/iss4/6