Teaching Tax: And Farmers’ Markets Are Not Tax Exempt

I tell my students that the difference between tax attorneys and tax accountants is that attorneys are proactive and accountants reactive.  We plan and structure before the fact, they crunch numbers and report after the fact.  I know it’s not and probably never has been entirely accurate.  But saying so helps eliminate the idea that tax practice is an after-the-fact exercise.  The case method leaves that impression.  Exams reinforce the impression by asking “what are the tax consequences?”  “The tax consequences are what we [honestly] planned them to  be” is the only correct answer.  And Lord knows tax ain’t math.  It’s just overwrought English sometimes, too much, and lots of it.  But when people assume I am in the hard sciences and a mathematical genius, I let them believe it. Why spoil the fantasy?  “Its lot harder than that consumer math, fella.” 

Ok, seriously. Here is an exercise for all you tax scholars walking around with pens and slide rules in your shirt pockets. PLR 202406014, released about a week or ten days ago, provides opportunity to change the classroom monotony.  Put your students in groups and have them organize the Farmers’ Market operations so it qualifies for tax exemption.  Don’t say “reorganize” because a tax lawyer shoulda been there from the start. That’s the point to be made. Tell them they are proactively working on the front end. And just to make it interesting, tell them that the client insists that vendors pay fees “because there are expenses and I need to earn a living, for Christ’s sake!” 

By the way, I always put them in groups because I want them to understand that in this day and age, there is no such thing as a “sole practitioner.”  A tax attorney sitting in Glastonbury, Connecticut can run something by another way out in Odessa, Texas somewhere.  Don’t ever not ask somebody.  Most times, I make this a take home exercise.  It is never research heavy because PLRs are always nicely laid out with facts, issue, law, and analysis.  So here are the facts from PLR 202406014:

Your mission, as stated on your 1023-EZ , is to operate a farmer’s market. Detailed information was subsequently requested. In operating your farmer’s market you provide a space for the sale of fresh produce & crafts from local artisans directly to the public. This will promote and showcase the variety and diversity of locally and regionally grown produce, food items and crafts. You provide an educational forum for customers to learn the uses and benefits of quality, locally grown food products. You intend to enhance the quality of life in your locality by providing a community activity which fosters social gathering and interaction. These purposes are clearly stated in your Bylaws and vendor application.

Your vendor application states, in part, that you will consider all applications and will determine eligibility based primarily on the vision and the needs of your market. You encourage the sale of a variety of goods and services.  Your vendors pay a weekly fee of y dollars, with an option for annual rate at a potential discount. Vendors are required to provide goods which are homegrown, harvested, handmade and/or created from locally owned operations. Any exceptions are handled on a case-by-case basis by the market manager. You also allow for artisans, crafters, food vendors, non-profit clubs, and organizations to apply for a daily stall. You operate weekly, [redacted data] through [redacted data].

Your funding in the years provided is primarily fee based; in only one of the [redacted data] years provided did the donations pass y percent. Your expenses are insurance, advertising, sanitary, and various administrative costs. Based on your response, services provided are not below costs.

The concise and well-written ruling concludes that the organization is neither charitable, educational, or religious and thus does not qualify for recognition under IRC 501(c)(3).  And that it operates for private benefit.  Assume you are the attorney advising the organization hired before the organization applied for recognition.  Restructure the organization so that it will, in your opinion, qualify for recognition.

darryll k. jones