Charitable Giving Corner

• DOI: http://doi.org/10.1002/npc.30640
• Date: 01 September 2019
• Published date: 01 September 2019

Bruce R. Hopkins’ NONPROFIT COUNSEL

8 September 2019 THE LAW OF TAX-EXEMP T ORGANIZATIONS MONTHLY

Bruce R. Hopkins’ Nonpr ofit Counsel DOI:10.10 02/n pc

CHARITABLE GIVING CORNER

◆An entity created a charitable lead annuity trust, to

provide annuity payments to a private foundation. Sub-

sequently, the entity assigned its interest in the trust (the

reversion) to an individual. This individual died during the

annuity period. By will, this interest was transferred to the

foundation, thereby merging the annuity and remainder

interests. A court order is required to consummate the

transfer to the foundation. The IRS ruled (applying IRC §

661) that the distribution of the trust’s assets to the foun-

dation will not be a distribution in satisfaction of a right

to receive a distribution of a specific dollar amount or in

specific property other than that distributed, nor will it

be a distribution in satisfaction of a general claim for an

ascertainable value (Priv. Ltr. Rul. 201928005). Therefore,

the IRS concluded, no gain or loss need be recognized

by the trust as a consequence of the distribution. [16]

◆A corporation has charitable contribution and net

operating loss carryovers from multiple tax years avail-

able in the year at issue. A reduction to a person’s chari-

table contribution carryover is required to the extent an

excess charitable contribution reduces modified taxable

income and an increase in a NOL carryover is required

(to eliminate a double tax benefit) (IRC § 170(d)(2)(B)).

The IRS ruled that the corporation is required to use a

year-by-year NOL absorption computation to determine

the charitable contribution carryover adjustment (IRC

§ 172(b)(2)) and the corporation must first reduce its

current-year charitable contributions by the adjustment

(under IRC § 170(d)(2)(B)) before reducing its earliest

year’s charitable contribution carryover (Chief Couns.

Adv. Mem. 201928014). The corporation’s position that

the adjustment should be calculated on an aggregate

basis was pronounced incorrect. [7.4(b)]

◆The IRS calculated, in the case of a charitable lead annu-

ity trust, where the income interest charitable beneficiary

is being split into two private foundations, the termina-

tion date for the trust based on the “trust mechanics”

and “basic actuarial and financial principles” (Priv. Ltr.

Rul. 201930017) (see next month’s issue). [16] ◆

NATIONAL TAXPAYER

ADVOCATE STILL UNHAPPY

WITH RECOGNITION PROCESS

According to the National Taxpayer Advocate’s Objec-

tives Report FY 2020 to Congress, made public on June

20, the Tax Exempt and Government Entities Division

just cannot seem to properly function when it comes

to processing applications for recognition of exemption

filed by organizations seeking charitable status.

The report observes that the IRS has “struggled for

years to contain Form 1023 processing times.” With

adoption of Form 1023-EZ, the IRS reduced Form 1023

cycle times, the report states, “but at the cost of exer-

cising actual oversight of the tax-exempt sector.” Then,

the report continues, as these cycle times increased, the

IRS “shifted resources away from post-determination

compliance efforts that were intended to correct for the

lack of up-front oversight.”

The report states that the IRS plans to develop a

revised, electronic Form 1023, to be released in Janu-

ary 2020. It is said that the Taxpayer Advocate Service

“will seek to ensure that the revised form does not

undermine the IRS’s oversight role of the tax exempt

sector as occurred in 2014 with the introduction of Form

1023-EZ.” ◆

Quote of the Month: Due to ambiguities in the law

concerning the excise tax on organizations paying excess

compensation (IRC § 4960), for-profit companies may

end up paying part of the tax, causing the nonprofit

sector to “suffer a major setback,” according to a June

18 letter (just made public) to the IRS from the Alliance

for Charitable Reform. The letter adds: “The risk that for-

profit companies will be responsible for the tax simply

because their highly skilled, highly compensated employ-

ees volunteer, or provide minimal time, with a related

[applicable tax-exempt organization] will lead many

companies to prevent these individuals from providing

any services to related ATEOs whatsoever.” ◆

Each article in the newsletter on a tax-exempt organizations law topic ends with a citation to the appropriate chapter(s) or

subchapter(s) in Hopkins, The Law of Tax-Exempt Organizations, Twelfth Edition (Wiley, 2019). This is done to provide ready access

to additional and background information concerning these articles. For example, underlying information concerning the first article

in this issue is available in Chapter 11 § 9(b) of the book; thus, the citation is referenced as [11.9(b)]. Likewise, each article in the

newsletter on a charitable giving law topic ends with a citation to the appropriate chapter(s) or subchapter(s) in Hopkins, The Tax

Law of Charitable Giving, Fifth Edition (Wiley, 2019 cumulative supplement). For example, underlying information concerning the

fourth article in this issue is available in Chapter 3 § 1 of the book; thus, the citation is referenced as [3.1].

This newsletter is a stand-alone publication. An inventory of articles in the newsletter since its inception in 1983, and a subject mat-

ter index, as well as an index of the court opinions, IRS revenue rulings and procedures, IRS technical advice memoranda, and IRS

private letter rulings discussed in the newsletter, are available at www.brucerhopkinslaw.com. For those who have the books, the

newsletter also provides monthly updates. Both books are annually supplemented. Questions concerning nonprofit law develop-

ments in general may be sent to brucerhopkins@brucerhopkinslaw.com. Also, a comprehensive summary of nonprofit law is avail-

able in the Bruce R. Hopkins Nonprofit Law Library, an e-book published by Wiley. Follow BRHopkins_NPLaw on Twitter.

The newsletter has a dedicated website. Please visit wileyonlinelibrary.com/journal/npc.