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How This Nonprofit Lost Their Nonprofit Status — Giving Hearts, Inc.

By: David Leipnik

It’s not too often that you hear about an organization losing their nonprofit status. Here’s the story of one that did.

How It Happened

Ronald Carrier founded Window Plus, Inc., a for-profit window replacement service, in 1987. To market the business, Carrier and his team relied on telemarketing. This became an issue in 2009 when the National Do Not Call Registry began. This federal program allowed individuals to join a list to avoid calls from commercial telemarketers such as the calls made by the staff at Window Plus.

Realizing that charitable organizations were exempt from Do Not Call Registry restrictions, Carrier came up with a new plan. In 2009, Carrier founded Giving Hearts, Inc. a nonprofit created as part of a “corporate sponsorship program” of Window Plus.

Telemarketing staff from Window Plus all of sudden became marketers for Giving Hearts. They continued to call the same potential customers, but this time under the Giving Hearts name. The calls went something like this – if the person on the other end of the line agreed to have a Window Plus salesperson come for a sales call at their home, Window Plus would then donate an amount to Giving Hearts.

Here’s part of their script:

Hello __________ this is _______________ calling on behalf of Giving Hearts. We are a non-profit organization helping to fund local children’s charities. We have sponsored the Window Plus company for the purpose of fund raising. For every home owner that accepts a product demonstration and free estimate our charity [Giving Heart] will receive a donation from Window Plus…

This went on for years. Between 2010 and 2016, Giving Hearts received $40,000 in donations from Window Plus. Distribution of those funds went to various charitable organizations in the area.

After 2016, the IRS revoked Giving Hearts exempt status. The IRS contended that Giving Hearts was operating primarily for commercial purposes to generate sales leads for Window Plus. Window Plus claimed that it was operating, at least in part, for exempt purposes, and appealed the tax-exemption revocation to the United States Tax Court.

The Final Ruling

The Tax Court ruled to uphold the IRS’s revocation of Giving Hearts’ non-exempt status. According to Internal Revenue Code Sec. 501(c)(3), any tax-exempt organization must operate exclusively for an exempt purpose. Since the phone calls made by the staff on behalf of Giving Hearts primarily intended to generate leads for Window Plus, the court determined the organization was not operating for an exempt purpose.

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Published September 3, 2019

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