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• Author: Bruce R. Hopkins
• Profession: Leading authority on the law of tax-exempt organizations
• Pages: 349-373

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rafe

See Wag er in g.

ratio method

The “ratiomet hod”is a metho d of allocationof expenses used by an organization in allocating

costs to lobbyingactivities or political campaign activities, for purposes of the rules denying

abusiness expense ded uction formostofthesetypesofactivities(IRC §162(e)(l)). Under

this method, the organization determines its costs properly allocable to lobbying activities by

adding its third-party costs to the costs determined by using a formula where a fraction, with

lobbyinglabor hours in the numerator and total labor hours in the denominator, is multiplied

against the organization’s total costs of operation. An organizationt hatdoe s notp ayor incur

reasonable labor co sts for persons engaged in lobbying activities, however, may not use this

method. [EO §§ 22.6(a), 23.7] (also Gross-up method;Section 263A cost allocation method).

real estate board

A “real estate board” is an association of realtors, usually op erating at the local level. These

organizations,whicharetax-exempt (IRC §§ 501(a), 501(c)(6)), provide support services for

realtors and information about the locality to potential purchas ers of real estate. [EO §14.5;

AS §2.13].

real property

The term “real property” means property that is land and property th at is erected on, axed

to, or growing on land. The term can also include various rights associated with real property.

One major characteris tic of real property, as distinguished from othe r forms of property, is its

permanence, its immobile nature.Real property, including things annexed to it, is permanently

axed in place. Real prop erty (or an interest in it) can, ofcourse, be the subject of a charitable

contribution.[CG§§2.12(a), 3.1(d), 24.7(b)(9); AR §§ 19.1(k), 19.2(i); HC §15.2; RE Q 17.6–

Q 17.19] (also Fixture).

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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350 REALIZATION

realization

The term “realization” means the economic accession to wealth that is recognized in the law;

there must be a realization of income or gain before there can be taxation of it. Thus, when

the fair market value of an item of property increases, that gain is realized in the law. [CG §

2.14(d)] (cf. Recognition,of gain or loss).

reallocation of charitable contribution deduction, by IRS

The IRS has the authority to “reallocate” items of income,deductions,andcredits (IRC §482).

This type of reallocation is done where necessary to prevent the evasion of taxes or to ensure

the clear reection of each taxpayer’s income. The IRS canuse this authority to reallocate, in

the charitable giving context, in order to adjust (reduce) a claimed charitable contribution

deduction.[CG§10.10].

reallocation of expenses

The IRS has the authority to recharacterize one or more expenses of a person to state(reect)

more correctly the person’s tax position (including liability). This authority also extends to

reallocations of items of income,deductions (including the charitable contribution deduc-

tion), and credits (IRC §482). This concept is used in determining the reasonableness

of certain payments to tax-exempt organizations from controlled organizations (IRC §

512(b)(13)(E)(i)). [CG §10.10; EO §§ 29.6, 30.7(d)].

reasonable

The law is replete with uses of th e word “reasonable.” There are requirem ents that persons

act in a “reasonable” manner; that charitable and other tax-exempt organizations provide

compensation to their employees,consultants, and vendors that is no moret han whatis “rea-

sonable;” there is a r ule of “reason”; and individuals can be arreste d for the commission of a

crime where there is reasonable cause.

Despite its widespread use, the term “reasonable” eludes easy denition. It is often synony-

mous with “rational,” being derived from the word “reason,” which is a faculty of t he mind

enablingtheindividualtodistinguishtruthfromfalsehoodandgoodfromevil,andtodeduce

inferences from facts. Other words used to dene “reasonable” are “appropriate,” “proper,”

“just,” “suitable,” “fair,” “equitable,” and “moderate.”

When it is said that charitable and other tax-exempt organizations must conne their pay-

ments of compensation and other items (such as rent and interest)tolevelsthatare“reason-

able,” what is meant is that the payments may not be excessive or immoderate (often termed

“unreasonable”).[EO §§ 20.4(b), 21.4(a), 21.9; HC §4.4(b); PF §5.1; CU Q 1.26; RE Q 2.7; SM

p. 51; CL §1.4; LI Q 1.32, Q 5.25] (also Private inurement).

reasonable cause

The term “reasonable cause”is used to describ e a rangeof circumstances as a result of which a

personis excused from responsibilityfor a particular act (commission)orfailuretoact(omis-

sion). While the application of this term is necessarily fact-specic and somewhat subjective,