Foundation Given Additional Five Years to Sidestep Holdings Penalties

Date01 December 2020
Published date01 December 2020
December 2020 5
Bruce R. Hopkins’ Nonpr ofit Counsel DOI:10.10 02/n pc
incorporation and the Securities and Exchange Com-
mission, demonstrate that it is operating pursuant to a
higher standard than that imposed by the federal tax
law. To which the IRS retorted: “[B]eing ethical in your
practice is not the issue at hand; rather, your qualifica-
tion for exemption under IRC [§] Section 501(c)(3) is the
issue.” [4.5(a), 4.9(g)]
The IRS ruled that a private foundation is entitled to an
extension of an additional five-year period for disposing
of excess business holdings (IRC § 4943(c)(7)), due to dil-
igent, albeit unsuccessful, efforts to sell the property and
development of a recapitalization plan that can reasona-
bly be expected to be carried out before the close of the
extension period (if needed) (Priv. Ltr. Rul. 202040002).
The founder of this private foundation contributed
stock, with an estimated value of over twice the value of
the foundation’s total assets at the time, to the founda-
tion, causing an excess business holding. The foundation
retained the services of a financial advisor during the
initial five-year period. Efforts to sell the company failed.
The company’s revenues have declined, as has been the
case in the entire industry. The size and complexity of the
company is also impeding its sale.
The foundation’s plan of disposition involves con-
tinuing efforts to sell the company, or at least the
foundation’s interest in it. There is no guarantee that
the company’s value will materially increase during the
extension period. The foundation represented to the IRS
that if sale of the stock during the first four years of the
period does not occur, the company will be recapitalized
so that the foundation’s holdings of the company’s vot-
ing stock will be reduced to no more than 20 percent
of the company’s total voting stock. The board of direc-
tors of the company has approved this approach, if it
becomes necessary. [12.4(c)]
By letters dated September 17, the IRS commissioner
provided updated statistics on the syndicated conserva-
tion easement listed transaction to the leadership of the
Senate Finance Committee. Much of this data is derived
from filed reportable transaction disclosure statements
(Form 8886). Here are some of these statistics:
The IRS received 39,619 Forms 8886 in calendar year
2017, 15,499 forms in 2018, and 17,182 forms in
The partnerships making the contributions (top-tier
partnerships) number 169 for tax year 2015, 249 for
2016, 244 for 2017, and 296 for 2018.
The reported fair market value of the charitable
contribution deductions for the top-tier partnerships
involved in these promotions is approximately $6
billion for tax year 2016, $6.8 billion for 2017, and
$9.2 billion for 2018.
There were 22,675 investors in tax year 2016, approxi-
mately 21,000 in 2017, and 32,465 investors in 2018.
The appraisers involved numbered 13 in 2015, 23 in
2016, 29 in 2017, and 34 in 2018.
The material advisors involved numbered 6,501 in
2017, 2,308 in 2018, and 2,582 in 2019 (filers of
Form 8918).
As to the deduction-to-investment ratio (the Notice
2017-10 base being 2.5), for calendar year 2018, the
ratio may be as high as 4.92, and for 2019 may be
as high as 5.06.
The top 10 percent of ratios for disclosures contain-
ing investment and deduction amounts for calendar
year 2018 had an average return-to-investment ratio
of 9.45 times the investment; this ratio for 2019 was
11.72 (see the Quote of the Month).
The IRS, on October 1, provided guidance about the
settlement option offered by the Office of Chief Counsel in
connection with certain syndicated conservation easement
cases pending before the US Tax Court (Chief Counsel Notice
2021-001). (This settlement initiative was announced last
June and reiterated in July, as discussed in the September
2020 issue.) This guidance principally focuses on the details
of the settlement terms. [8.15(b), (c)]
The Department of the Treasury and the IRS, on
October 1, issued final regulations providing guidance
regarding programs under the Stephen Beck Jr. Achiev-
ing a Better Life Experience Act of 2014 (ABLE Act) (T.D.
9923). A qualified ABLE program is a tax-exempt organi-
zation (IRC § 529A(a); Reg. § 1.529A-1(a)). It is subject to
tax on any unrelated business taxable income, although
certain administrative and other fees do not constitute
unrelated business income (Reg. § 1.511-2(e)).
The ABLE Act provides rules pursuant to which states
or state agencies or instrumentalities may establish and
maintain a federal tax-favored savings program for eligi-
ble individuals with a disability who are the owners and

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT