Non‐Social Welfare Organization Corner

• Date: 01 November 2017
• Published date: 01 November 2017
• DOI: http://doi.org/10.1002/npc.30392

Bruce R. Hopkins’ NONPROFIT COUNSEL

November 20176THE LAW OF TAX-EXEMPT ORGANIZATIONS MONTHLY

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

The easement deed in this case was contemporaneous

and included an “affirmative indication” that the donee

supplied no goods or services to the donor in exchange

for its gift. The court stated that this deed “thus negated

the provision or receipt of any consideration not stated

therein.” The clause concerning consideration of $10 and

other good and valuable consideration was held to con-

stitute “boilerplate language and has no legal effect” for

purposes of the substantiation rule.

The court considered whether the charity’s monitor-

ing activities should be considered a “service” provided

in exchange for the gift. In ensuring compliance with

the easement’s restrictions, the court said that the

charity “would be discharging its own enforcement

responsibilities as a charitable organization holding con-

servation easements.” The court added that the charity’s

monitoring would be an “odd form of ‘service’ because

it could generate no upside for [the donor] but only

downside,” such as the seeking of an injunction requir-

ing the donor to restore the property to the status quo.

Moreover, because the easements held by the charity are

its property, as the court noted, “any contribution to an

‘easement defense fund’ would seem to benefit it rather

than its donors.” The court concluded that the donee

supplied the donor with the requisite description and

good-faith estimate of the value of its monitoring activi-

ties, noting that the tax law “does not prohibit a charity

from providing services to a donor.” [21.4]

Note: This case is, in essence, identical to the 310 Retail,

LLC case discussed in last month’s issue. Question: How

is it that a qualified charitable organization (IRC § 170(h)

(1)(B)) is incapable of engaging in the ministerial task of

providing its easement donors with a contemporaneous

written acknowledgment of the gift? ◆

NON-SOCIAL WELFARE

ORGANIZATION CORNER

• A nonprofit organization was formed to maintain

and elevate the professional and ethical standards

of the educational profession in a city. Its member-

ship consists of certified administrators who are part

of a collective bargaining unit. Its activities consist

of negotiating contracts, salaries, and benefits for

its members. The IRS denied recognition of exemp-

tion as a social welfare organization in this case,

inasmuch as the entity is not being operated for the

benefit of a community (Priv. Ltr. Rul. 201736026).

The IRS also ruled that this organization is not a local

association of employees because its disbursements

are for negotiations, lawyers’ fees, and mediation

and arbitration, rather than for charitable, educa-

tional, or recreational purposes. [13.2(b), 19.3]

• An organization’s articles of incorporation state that

it is a “condominium development management

association formed, organized, and operated . . . for

the acquisition, construction, management, mainte-

nance, and care of property owned by this corpora-

tion, property commonly owned by the members of

this corporation, and property within this corporation

privately owned by its members.” Not surprisingly,

the IRS ruled that this entity, with a membership of

10 dwellings, did not qualify for tax exemption as a

social welfare organization because it is not promot-

ing the common good and general welfare of the

people in a community (Priv. Ltr. Rul. 201736027).

Although there is no dissolution clause requirement

for social welfare organizations, the IRS cited this

entity’s dissolution clause, which left its assets to the

members, as “further illustrat[ing]” that it is not serv-

ing a “wider community.” [4.3(b), 13.2(a)] ◆

GOVERNMENT ENTITY

CORNER

• The IRS considered a situation where a county and

employer are political subdivisions of a state; both

entities participate in the same retirement system.

The county and employer each established a trust to

invest assets to pay benefits under their postemploy-

ment benefits program. A master trust was created

to co-invest and mingle the assets of these two trusts

for investment purposes. A majority of the master

trust’s board is appointed by the county’s board

of supervisors. If the master trust is terminated,

its assets will be distributed to the two underlying

trusts. With ease, the IRS ruled that the pooling of

the investments of the two trusts is an essential gov-

ernment function and that the master trust’s income

will accrue to a state or political subdivision (IRC §

115(1)) (Priv. Ltr. Rul. 201735001). The IRS also ruled

that the master trust does not have to file annual

information returns (IRC § 6012(a)(4)). An IRS ruling,

nearly identical to the foregoing, was subsequently

issued (Priv. Ltr. Rul. 201736015). [19.22(b)]

• The IRS also considered the status of an entity that

sought a ruling that it is a political subdivision of a

state for revenue bond purposes (IRC § 103). Under

the state’s constitution, public transportation is an

essential public purpose. The public transportation

needs are served by an authority that is a unit of local

government. A division of the authority administers

a commuter rail system in a metropolitan area. This

division has the authority to issue revenue bonds,

pass ordinances, and make necessary rules and regu-

lations. Its board is appointed by governing bodies of

counties and the CEO of a city. The IRS ruled that the

division is a division of a state or local government

for purposes of the bond rules (Reg. § 1.103-1(b))

(Priv. Ltr. Rul. 201735020). Noting that the division