IRS Issues Procedural Rules for 2020

• Date: 01 March 2020
• DOI: http://doi.org/10.1002/npc.30702
• Published date: 01 March 2020

Bruce R. Hopkins’ NONPROFIT COUNSEL

6 March 2020 THE LAW OF TAX-EXEMP T ORGANIZATIONS MONTHLY

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

IRS granted the trust an extension of time to file for this

election, to enable the contributions to be deemed made

in the prior year (Priv. Ltr. Rul. 202001014). [9.22]

◆A nonprofit organization sought recognition of tax

exemption as a title-holding company (an IRC § 501(c)

(2) entity). The organization’s articles of incorporation

state that it is formed to hold title to property, collect

the income therefrom, and distribute the net income

to its sole member. Its member is a disregarded entity

with respect to another organization. The applicant

represented to the IRS that this other organization is

tax-exempt. Without explanation, the IRS stated that it is

not exempt; thus, the IRS ruled that this entity does not

qualify as an exempt title-holding company (Priv. Ltr. Rul.

202001027). [19.2(a)] ◆

NONPROFIT ORGANIZATION

HAS FAIR HOUSING

REGULATORY CLAIMS

DISMISSED

The US Court of Appeals for the Fifth Circuit, by

opinion dated December 30, held that a nonprofit

organization lacks standing to sue the Department of

the Treasury or the Office of the Controller of the Cur-

rency in connection with these agencies’ involvement in

a tax-credit program designed to advance availability of

fair housing (The Inclusive Communities Project, Inc. v.

Department of Treasury and OCC).

A public charity (ICP) focused on assisting families

seeking access to housing in predominantly nonminority

areas of a metropolitan area sued the Treasury Depart-

ment and the OCC for their alleged failure to promote

fair housing. Specifically, the ICP, invoking the Fair Hous-

ing Act, averred that the local housing credit agencies

(HCAs) failed to adequately administer the federal low-

income housing tax credit program.

This program is administered by the Treasury Depart-

ment, which has the power to deny or recapture a

credit claimed by a noncompliant investor. Only HCAs,

however, have the power to choose the projects that

will receive credits.

The OCC is the primary regulator of national banks.

Although national banks are generally forbidden from

owning or investing in real property, they are permitted

to make “public welfare” investments in real estate,

including federal low-income housing tax credit pro-

grams. The OCC regulates and approves national banks’

public welfare investments. This agency, however, does

not regulate all individuals or entities that may invest in

these housing projects; it is not involved in the selection

of the projects that receive the credits.

The ICP brought this lawsuit, asserting claims under

the Fair Housing Act and the Fifth Amendment to the

US Constitution. The ICP charged that Treasury and OCC

abdicated their FHA duties to regulate this tax credit

program in a manner that furthers fair housing. This

abandonment, the ICP claims, is intentional discrimina-

tion in violation of the Fifth Amendment. These claims

are based primarily on statistical data showing that tax-

credit-based housing in the metropolitan area remains

segregated by race.

The Fifth Circuit stated that, to have standing to sue,

the organization must have suffered an injury in fact

that is fairly traceable to the challenged conduct of the

defendant. That is, there must be a causal connection

between the plaintiff’s injury and the defendant’s chal-

lenged conduct.

The appellate court noted that state and local HCAs

have the power to allocate the tax credits to specific

affordable housing projects. It held that the ICP failed

to establish the requisite causal chain that connects the

actions ICP proposes that Treasury take to some cor-

responding change in how the HCA involved allocates

credits and connects the change to the financial injuries

that ICP suffers to location of tax-credit units.

The Fifth Circuit noted that, as to the OCC, only the

ICP’s first injury is relevant. Again, the court of appeals

wrote that the ICP failed to demonstrate a causal link

between that injury and OCC’s practice of approving

national banks’ investments in these housing projects.

The OCC does not regulate HCAs or project sponsors.

That is, the court stated, the OCC does not have the

power to direct national banks to make investments in

these projects or to regulate the myriads of other entities

that may invest in these projects. ◆

IRS ISSUES PROCEDURAL

RULES FOR 2020

The IRS issued its annual compilation of the procedural

rules in the tax-exempt organizations and larger law con-

texts for 2020, including the following:

• Procedures for letter rulings and information letters

generally (Rev. Proc. 2020-1, 2020-1 I.R.B. 1).

• Procedures as to when and how an associate office

within the Office of Chief Counsel provides technical

advice (Rev. Proc. 2020-2, 2020-1 I.R.B. 107).

• A list of matters on which the IRS will not issue letter

rulings or determination letters (Rev. Proc. 2020-3,

2020-1 I.R.B. 131).

• Procedures for issuing determination letters on issues

under the jurisdiction of the director of exempt orga-

nizations rulings and agreements (Rev. Proc. 2020-5,

2020-1 I.R.B. 241).