2020‐2021 Priority Guidance Plan Released

Published date01 February 2021
Date01 February 2021
Bruce R. Hopkins’ Nonpr ofit Counsel DOI:10.10 02/n pc
Net Operating Loss Deductions
For tax years beginning after December 31, 2017,
an exempt organization with more than one unrelated
business determines the NOL deduction separately with
respect to each of its unrelated businesses (Reg. §
1.512(a)-6(h)(1)). The regulations explain coordination
of pre-2018 and post-2017 NOLs (Reg. § 1.512(a)-6(h)
(2)), the treatment of NOLs on dispositions of separate
unrelated businesses (Reg. § 1.512(a)-6(h)(3)), and the
treatment of NOLS when identification of a separate
unrelated business changes (Reg. § 1.512(a)-6(h)(4)).
Public Support Tests
The regulations include revisions to the public sup-
port tests (IRC §§ 170(b)(1)(A)(vi) and 509(a)(2)) to
permit an exempt organization with more than one
unrelated business to aggregate its net income and net
losses from all unrelated business activities for purposes
of determining whether the organization is publicly
The final regulations provide exempt organizations
the option of determining public support using their UBTI
calculated under the bucketing rule or in the aggregate.
Effective Date
These regulations are applicable with respect to
tax years beginning on or after December 2, 2020. An
exempt organization may elect to apply the regulations to
previous tax years beginning on or after January 1, 2018.
Reserved Issues
The proposed regulations reserved two issues for
additional consideration. One of these issues relates
to the allocation of expenses, depreciation, and similar
items shared between an exempt activity and an unre-
lated trade or business or between or among more than
one unrelated business. The second issue related to
changes made to the NOL deduction by the Coronavirus
Aid, Relief, and Economic Security Act (summarized in
the June 2020 issue). The Treasury Department and the
IRS anticipate publishing separate proposed regulations
that will address these issues.
Affected Exempt Organizations
Treasury and the IRS believe that, at most, 14 per-
cent of exempt organizations will be affected by these
regulations. Among the types of exempt organizations
expected to have more than one unrelated business are
colleges and universities, museums and other cultural
organizations, and hospitals.
Based on a recent survey by the Center on Nonprofits
and Philanthropy, Treasury and the IRS project that less
than two percent of exempt organizations (about 4,000
filers) will be affected, with these tending to be large
educational or arts and cultural organizations [12.3(b)
(i), (iv), 25.5].
A limited liability company contributed a valid conser-
vation easement to a qualified charitable organization.
The transaction occurred, as the US Tax Court stated the
matter, “at the very peak of an amazingly frothy local re-
al-estate market.” Indeed, the IRS’s expert testified that
the easement was contributed at the “top of the market
and that the underlying property, unencumbered by the
easement, was worth less than the amount the donor
paid to acquire it.”
The court, following the dictates of the before-and-
after method of valuation and dissecting the opinions of
the parties’ experts, concluded that the amounts claimed
for charitable deductions in this case were reasonable
(Rajagopalan v. Commissioner; Sapp v. Commissioner
(November 19)). The members of the LLC were said to be
able to get the benefit of the real-estate bubble.
The court recalled the aphorism among observers of
the stock market that “bulls make money, bears make
money, but pigs get slaughtered.” The court observed
that the individual donors took a return position that
was “very considerably subhyperporcine” and thus ena-
bled them to keep their deductions.
The court also acknowledged “how unusual it is in a
valuation case to not find a number somewhere between
those of the experts who battled it out at trial.” But one
of the witnesses was held to have vastly understated
the property’s value at acquisition. The other expert was
faulted for basing his opinion on transactional data with
respect to other properties, rather than data concerning
the property at issue. [9.7, 10.1]
2020-2021 PRIORITY
The Department of the Treasury and the IRS, on No-
vember 17, released the 2020-2021 Priority Guidance
Plan. This version of the plan includes 14 projects in the
tax-exempt organizations and charitable giving contexts,
plus an inventory of the regulations and other guidance
issued in implementation of the Tax Cuts and Jobs Act.
Implementation of TCJA
Final regulations concerning the bucketing rule have
been published (see lead article).
Final regulations on the college and university invest-
ment income tax (IRC § 4968) were published in Sep-
tember (summarized in the December 2020 issue).

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