Nonprofit Organization Has Fair Housing Regulatory Claims Dismissed

Date01 March 2020
Published date01 March 2020
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)]
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.
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).

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