sex and taxes

OK, so I know my life is lacking in some ways, but I assure, I have good reason to have been searching tax documents this afternoon. Really, I swear, it's not because I couldn't find anything better to do.

And along the way, searching for the things I want, I notice all kinds of other things... that are irrelevant, but nevertheless fascinating... Did you know: being a paid informant is income-tax free?

From the 2007 Federal 1099-MISC tax form instructions:
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Fees paid to informers. A payment to an informer as an award, fee, or reward for information about criminal activity is not required to be reported if the payment is made by a federal, state, or local government agency, or by a nonprofit organization exempt from tax under section 501(c)(3) that makes the payment to further the charitable purpose of lessening the burdens of government. For more information, see Regulations section 1.6041-3(I).
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... so does this mean that if Larry Flynt set up a 501(c)(3) and found out something about a Senator that ended up just happening to be illegal where they did it (e.g. polygamy, sodomy, adultery, bestiality, necrophilia), the person who gives up the info gets the $1M tax-free? How funny would that be?