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• Author: Bruce R. Hopkins
• Profession: Leading authority on the law of tax-exempt organizations
• Pages: 294-337

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parens patriae

The words “parens patriae” are Latin for “parent of his country.” The term today is used to

express the role of a governmentas a guardian of certain persons who are seen (usually by the

government) as in need of the protection aorded by the government. For example, the role

of the states in administering and enforcing charitable solicitation acts is viewed as the pro-

vision of protectionfor citizens who would otherwise be duped, swindled, anddefrauded into

making contributions to entities that are not,in fact, charitable organizations or to persons

who would not use thegifts for charitable purposes.[FR§3.19] (also Police power).

parent organization

The term “parent organization” is used to describe an organization that, at a minimum, con-

trols one or more other organizations and pe rhaps owns one or more other organizations .

These other organizations are known as subsidiary organizations (or subsidiaries). Where

the parent and subsidia ry organizations are nonprot organizations, this eleme nt of control

is usually manifested in interlocking directorates,whereatleastamajorityofthemembers

of the board of directors of the subsidiary organization are, and/or are selected by, members

of the board of director s of the parent organization. In some instances, t his element of control

is reected in sto ck; where the relationsh ip between the parent organ ization and a subsidiar y

organization is represente d by stock, the parent organization wi ll, in addition to controlling t he

subsidiary, own the subsidiary (assumi ng the parent organization owns at least a majority of

the stock of the subsid iary organization). It is common for this s ame result to occur by reason of

the fact that the parent organizationis the member of th e subsidiary organization . Special rules

may apply to tax revenue paid by a subsidiary organization to a parent organization. [EO §§

12.3(c), 29.1; HC §20.2] (also Aliated organization;Control;Feederorganization;Group

exemption;Subordinate;Supporting organization).

parsonage allowance

Agross incometax exclusion is available, in the cas e of a ministerof the gospel, for the rental

value of a home furnished to the minister as part of his or her compensation and for a rental

allowance paid to the minister as part of his or her compensation. This allowance is available

Bruce R. Hopkins’ Nonprot Law Dictionary, First Edition. Bruce R. Hopkins.

©2015 Bruce R. Hopkins. Published 2015 by John Wiley& S ons,Inc.

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PARTICIPATING LOAN RESTRICTION 295

to the extent the minister uses it to rent or providea home and to the extent the allowance does

not exceed the fair rentalvalue of the home, including furnishings and appurtenances such as

a garage, plus the cost of utilities. A federal district court held that the exclusion in the form

of the allowance is unc onstitutional as a violat ion of the Establishment C lause, although th at

determination was nullied when an appellate cour t ruledthat the plaintis lacked standing

to bring the action (IRC §107). [EO §10.1(b); CL §§ 2.4, 2.5] (also Convenienceof employer

doctrine).

partial interest

An item of property is—conceptually—comprised of two types of interests: one or more

income interests and one or more remainder interests. Since these interests each constitute

less than the totality of the interests in the property, they are termed “partial interests.” This

concept underlies many forms of planned giving.Whenadonor makes an outright g ift of an

item of property,he, she, or it contributes all of his, her, or its interestin the property. A donor

may, however, contribute only an income interest or a remainder interest in an item of prop-

erty.Usually,themediumthatisusedto“split”apropertyintotheseinterestsisasplit-interest

trust.[CG§5.3; SM pp. 233–234].

partial interest gift

A “partial interest gift” is a gift to a charitable organization or other person of less than the

donor’senti re interest in an item of property (or money); it is a gift of a partial interest.[CG

§§ 5.3, 9.23; PF §§ 14.1(a); 14.2, 14.5; SM p. 138].

partially agreed case

One of the types of IRS tax-exempt organization examination cases that may be closed is

the “partially agreedcase,” which is a case that entails more than oneissue, where the exempt

organization agreeswith the IRS to at least one issue and disagrees a s to atle ast one issue, and

signs the appropriate waiver and acceptance formsas to the agreed issues. [AU §5.32(a)].

partially completed appraisal summary

Thephrase“partiallycompletedappraisalsummary”isusedinthecontextoftheappraisa l

rules that apply withrespect to certain charitable contributions of appre ciated property.In

the case of nonpublically traded securities,the claimed value of which does not exceed $10,000

but is greaterthan $5,000, the donor must att ach a partia lly completed appr aisal summar y form

(Form 8283)tothetax return on wh ich the charitable contribution deduction is cl aimed.

[CG §21.5; FR §5.17(c); SM pp. 139–140].

participating loan restriction

The term “participating loan restriction”is used in the context of dening circumstances where

an exception, from the law treating income from debt-nanced property as unrelatedbusi-

ness taxable income,isavailabletoqualied organizations that make debt-nanced invest-

ments in real property (IRC §514(c)(9)(A)). Under this exception, income from investments

in real property is not treated as income from debt-nanced property.

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296 PARTICIPATION

This exception is availableonly where six restrictions are satised (IRC §514(c)(9)(13)). One

of them is the “participating loan restriction,” which provides that the amount of the indebt-

edness or any amount payable with respect to the indebtedness, or the time for making any

payment of any amount, may not be dependent (in whole or in part) on revenues,income,

or prots derived fromthe property (IRC §514(c)(9)(B)(ii)). This rule, however, is relaxedin

this regard where (1) a qu alied organization ac quires the property f rom a nancial institu-

tion that acquired the real property by foreclosure (or after an actual or imminent default), or

was held by the selling nancial institution at the time that it entered into conservatorship or

receivership, (2) any gain recognized by the nancial institutionwith respect to the property is

ordinary income , (3) the stated principal amount of the seller  nancing does not exceed the

nancial institution’s outstanding indebtedness (including accrued but unpaid interest) with

respect to the property at the time of foreclosure or default, and (4) the present value of the

maximum amount payable pursuant to any parti cipation feature cannot exceed 30 p ercent of

the total purchase pr ice of the property (including c ontingent payments) (IRC §514(c)(9)(H)).

[UB §5.4(f); EO §24.9(c)].

participation

Generally, “participation” means taking p art in some action or attempt; it is the act of p articipa-

tion. The federal tax law uses t his wordin a variety of settings: (1) there is no business expense

deduction for anamount paid or incurred in connection with any “participation”in a political

campaign involving a candidatefor public o ce (IRC§162(e)(1)(B)), (2) tax-exempt char-

itable organizations maynot be a part of any “participation”in a political campaign involving

acandidatefor public oc e (IRC §501(c)(3)), (3) oneof the excis e taxes imposed for acts of

self-dealing canbeassessedwhenafoundation manager had a “participation” in the act (IRC

§4941(a)(2)), and (4) one of the excise taxes imposed for an inappropriateparticipation in the

making of a jeopardizing investment (IRC §4944(a)(2)). [EO §§ 23.2, 23.7; PF §§ 5.15(d),

8.5(a); LI Q 4.62, Q 5.45, Q 8.5].

participation, units of

See Units of p articipat ion.

particular services

The term “particular services” generally means services that are providedby a tax-exempt busi-

ness league to some of its members (or perhaps other persons) that are in addition to those

that are exempt functions funded by dues; usually there is a separate payment for these ser-

vices. The tax regulations indicatethatprovisionofthesetypesofservicesisagroundforloss

or denial of exemption, although the greater likelihood is thatthe activity will be treated as an

unrelated trade or business.[EO§14.2(c); UB §9.4(a); AS §2.10(c)].

partisan

The word “partisan” generally means to be (or s omeone who is) strongly devoted to (perhaps

militantly so) a particular political party.The term is als o used with respect to causes andide as.

(cf. Nonparti san).