Comments on DAF Notice

• Published date: 01 April 2018
• Date: 01 April 2018
• DOI: http://doi.org/10.1002/npc.30451

Bruce R. Hopkins’ NONPROFIT COUNSEL

5

April 2018

THE LAW OF TAX-EXEMPT ORGANIZATIONS MONTHLY

Bruce R. Hopkins’ Nonprofit Counsel DOI:10.1002/npc

protect itself by failing to issue an administrative ruling and

then conceding shortly after initiation of the court proceed-

ing (Grisanti v. United States (N.D. Miss., 2006)). The Tax

Court, however, declined to follow this reasoning because

it is “inconsistent” with the court’s prior approach, which

evaluates the government’s litigating position on the basis

of its activities after the filing of the petition. “Evaluated on

that basis,” the court stated, the government’s litigating

position in this case—“prompt concession”—“cannot be

criticized” and was “substantially justified.”

The Tax Court expressed its “sympath[y] for the

organization’s cause. The court characterized that cause

thusly: “Petitioner waited well over 14 months after it

applied, and even then the IRS declined to give petitioner

any assurance that a ruling would be forthcoming. We

cannot criticize petitioner for then filing a petition; and

the IRS’s almost immediate issuance of a determination

and concession indicates that petitioner should not have

been put to the trouble and expense of doing so.”

The court observed that Congress amended that cost

award law to allow for the awarding of costs in declara-

tory judgment proceedings only where the government’s

position is not “substantially justified.” This was seen

by the court as “leav[ing] a gap in coverage in circum-

stances such as this one,” but, it added, “it is not our

place to provide a remedy.”

Note: This opinion does not reveal why the IRS let more

than 14 months elapse without recognition of exemp-

tion. ◆

MANY TAX REGULATIONS TO

BE JETTISONED, AMENDED

The Department of the Treasury, on February 13,

published a notice of proposed rulemaking proposing

a “streamlin[ing]” of IRS regulations by removing 298

regulations that are no longer necessary because they

“do not have any current or future applicability” under

the Internal Revenue Code and by amending 79 regula-

tions to reflect the proposed removal of the 298 regula-

tions (REG-132197-17). This development comes as part

of the aftermath of a review of regulations mandated by

Executive Orders 13777 and 13789 (summarized in the

April 2017 issue).

The tax regulations proposed to be removed fall

into one of three categories. The first category includes

regulations interpreting provisions of the Code that have

been repealed. The second category includes regulations

interpreting Code provisions that, while not repealed,

have been significantly revised and the regulations do

not take into account for the statutory changes. The

third category includes regulations that, by the terms of

the relevant Code provisions or the regulations them-

selves, are no longer applicable (such as transition rules).

The nonprofit community will not be affected much

by this development. Here are the relevant proposals:

• Reg. § 1.501(k)-1 would be removed. This regulation

provides guidance under IRC § 501(s) relating to the

nonexemption of Communist-controlled organiza-

tions. That Code section was repealed in 2014.

• Reg. §§ 31.3121(k)-1 through -4 would be removed.

These regulations implement IRC § 3121(k), provid-

ing guidance on the constructive filing of waivers of

exemption from Social Security taxes by certain tax-

exempt organizations. IRC § 3121(k) was repealed

in 1983.

• Reg. § 31.3121(b)(8)-2 would be removed. These

regulations provide guidance under IRC § 3121(b)(8)

(B). Due to a law change in 1983, these regulations

are no longer applicable.

• Reg. § 31.3121(b)(10)-1 would be amended by remov-

ing the cross-reference to Reg. § 31.3121(b)(8)-2.

• Reg. § 1.503(e)-4 would be removed. This regulation

provides guidance under IRC § 503. It provides rules

relating to the denial of charitable deductions with

respect to contributions made before January 1, 1970.

• Reg. § 1.501(c)(17)-1 would be amended by chang-

ing a cross-reference in the second sentence in para-

graph (a)(5).

• Reg. § 1.501(c)(18)-1 would be amended by chang-

ing a cross-reference in the second sentence in para-

graph (b)(6).

• Reg. § 1.503(c)-1 would be amended by removing

the last sentence from paragraph (d).

• Reg. § 25.2522(a)-2 (concerning certain nonchari-

table gifts made before August 1, 1969) would be

removed. ◆

COMMENTS ON DAF NOTICE

As discussed in the February 2018 issue, the IRS

issued a summary of approaches that are under consid-

eration at the Department of the Treasury and the IRS in

connection with various issues regarding donor-advised

funds, from the perspective of development of proposed

regulations to accompany IRC § 4967 (Notice 2017-73).

Some thoughts on this notice follow.

Behold application of the doctrine of administra-

tive convenience! Pursuant to contemplated forthcoming

regulations, distributions from donor-advised funds would

automatically not be considered forms of public support

for distributee charities, irrespective of the degree of discre-

tion and control the fund had over the funds involved. This

approach would relieve Treasury and the IRS of the obliga-

tion to make a determination, or propose rules concerning

such a determination, as to whether a donor-advised fund

is being operated as a mere conduit or in some other

abusive fashion. But that is not the way the law should be.