IRS Declines to Aid Alcohol Drinkers in Dry County

Published date01 April 2016
Date01 April 2016
Bruce R. Hopkins’ Nonprofit Counsel DOI:10.1002/npc
of its time. Another 20 percent of its time is expended
on coordination with members’ third-party administra-
tors and benefit brokers and consultants. Ten percent of
its time is spent on administrative matters.
Law and Analysis
The IRS first ruled that there is no common business
interest among this organization’s membership, other
than the mutual desire to address health care payment
reform and improve access to care through collective
bargaining for health care rates and services. The agency
concluded that the members are not from one particular
line of business but rather are various employers inter-
ested in addressing health care payment reform and
improving access to care.
Focusing on this collective bargaining function, the
IRS also ruled that this organization is performing ser-
vices for its members as opposed to the improvement
of business conditions of one or more lines of business.
These services include management of provider con-
tracts, and coordination with third-party administrators
and brokers. These are services, the IRS wrote, that
would otherwise be necessary for each member to con-
duct on its own or through another entity. The agency
stated that this organization promotes the private inter-
ests of its members. [14.2(a), 14.2(c)]
The IRS has ruled that a tax-exempt cemetery com-
pany may grant historic property to a charitable organi-
zation without endangering its tax exemption (Priv. Ltr.
Rul. 201605019).
A nonprofit organization was formed to maintain a his-
toric cemetery for the benefit of its members, the owners
of burial sites in the cemetery. This entity is recognized as
an exempt cemetery company (an IRC § 501(c)(13) entity).
This organization owns and maintains property that
includes the historic cemetery, adjacent land, a historic
church building, and acreage on which the church build-
ing is located (Church Site). It has engaged in multiple
projects in the last ten years to preserve and restore
the cemetery, the church building, and other elements
of the Church Site. Years ago, the organization com-
menced restoration of the church building and the
grasses that grow on the Church Site.
A charitable organization, recognized as such, has been
formed to own, preserve, and maintain the church building
and other aspects of the Church Site, and conduct related
educational programs. The cemetery organization wants to
contribute the Church Site to this charitable entity.
A nonprofit cemetery company is entitled to tax
exemption if it is owned by and operated exclusively for
the benefit of its lot owners who hold the lots for bona
fide burial purposes and not for the purpose of resale
(Reg. § 1.501(c)(13)-1(a)). A mutual cemetery company
that also engages in charitable activities, such as the
burial of paupers, is regarded as operating in conformity
with this rule (id.). A charitable organization may further
its exempt purposes by granting its assets to another
exempt charitable organization (Rev. Rul. 67-149).
The IRS ruled that the grant by this cemetery
company of the Church Site to the exempt charitable
organization will be in furtherance of a charitable pur-
pose. That is, the grant itself is a charitable activity for
purposes of cemetery company tax law. [19.6]
The IRS has ruled that an organization does not
qualify as a tax-exempt social club because it essentially
operates a restaurant and bar in a dry county, and there
is no mingling of the membership as required by law
(Priv. Ltr. Rul. 201605021).
A nonprofit corporation was formed for the purposes
of (1) the social, cultural, and civic betterment of its mem-
bers; (2) participating in, cooperating with, and otherwise
supporting charitable and civic endeavors in its geographic
area; (3) providing for the enjoyment, recreation, leisure,
and entertainment of its members; and (4) establishing
and maintaining facilities where its members may gather
and assemble for civic, cultural, and social purposes. These
services are available for members and nonmembers. This
organization operates a bar and restaurant. This facility is
leased from two members of the entity’s governing body.
The organization’s membership is open to anyone
over 21 years of age, of good moral character, and
acceptable to its membership committee. Only members
and their guests may order alcohol.
The organization advertises to the public that it
operates a “family friendly restaurant and a bar and grill
serving food.” Its revenue sources are membership dues,
charges for entertainment, and charges for food and
drink provided. This facility is located in a dry county.

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